DOCKET SECTION
MPA-RT-1
POSTAL RATE COMMISSIONS
WASHINGTON,
D.C. 2626906Oi
I
POSTAL
RATE AND FEE CHANGES,
DOCKET
1997
NO. R97-1
REBUTTAL
TESTIMONY
OF
RITA D. COHEN
ON BEHALF OF
ALLIANCE OF NONPROFIT MAILERS,
AMERICAN BUSINESS PRESS,
COALITION OF RELIGIOUS PRESS ASSOCIATIONS,
DOW JONES & COMPANY, INC.,
MAGAZINE PUBLISHERS OF AMERICA,
THE MCGRAW-HILL COMPANIES, INC.,
NATIONAL NEWSPAPER ASSOCIATION,
AND
TIME WARNER
Communications
with respect
INC.
to this document
may be sent to:
James R. Cregan,
Counsel
Magazine Publishers
of America
Suite 610
1211 Connecticut
Avenue, N.W.
Washington,
D.C. 20036
(202) 296-7277
March 9,1996
TABLE OF CONTENTS
I.
AUTOBIOGRAPHICAL
II.
PURPOSE
OF CONCLUSIONS
1
III.
LARGE NOT-HANDLING
AND MIXED-MAIL COSTS PLAY A
CRITICAL ROLE IN DETERMINING AlTRIBUTABLE
COSTS
2
WHAT THIS RECORD SHOWS AND WHAT SELLICK
ABOUT NOT-HANDLING
COSTS
.
3
IV.
V.
VI.
VII.
VIII.
IX.
SKETCH
.
AND SCOPE AND SUMMARY
1
IGNORES
DEVELOPING OR EVALUATING A PROPOSED COST DISTIRIBUTION
REQUIRES A DEPTH OF KNOWLEDGE AND EXPERTISE NOT EXHIBITED
BY WITNESS SELLICK
6
WITNESS SELLICK SHOULD HAVE STUDIED THE FUNDAMENTAL
ISSUE:
CAN WITNESS DEGEN’S METHODOLOGY
BE USED WITHOUT BRADLEY’S
ANALYTICAL FRAMEWORK?
.
7
AFTER MISTAKENLY ASSUMING THAT HE COULD USE DEGEN’S
METHODOLOGY
WITHOUT BRADLEY, SELLICK FAILED TO CORRECT
DEGEN’S DISTRIBUTIONS
TO ACCOUNT FOR COST POOL
INTERRELATIONSHIPS.
9
INCORPORATING
COST POOL INTERRELATIONSHIPS
INTO
WITNESS SELLICK’S DISTRIBUTION WOULD LEAD TO VERY
DIFFERENT RESULTS
12
INEFFICIENCY AND SLACK TIME REQUIRE
IF INEFFICIENT COSTS ARE DISTRIBUTED
14
CROSS POOL DISTRIBUTIONS
AT ALL
X.
WITNESS SELLICK FAILED TO CONSIDER THAT DIFFERENCES BETWEEN
CAGs AND BASIC FUNCTIONS SUGGEST IT IS APPROPRIATE TO
DISTRIBUTE MIXED-MAIL AND NOT-HANDLING
COSTS WITHIN CAG AND
BASIC FUNCTION..
15
XI.
CONCLUSION
..__...__..._.._._._.._.,._...__,.___,,._..___.._
I
16
1
I. Autobiographical
Sketch.
1
3
My name is Rita Dershowitz
Cohen.
4
Analysis at the Magazine
5
since 1995 and have represented
6
twenty-five
7
Rate Commission
I am Vice President
Publishers
years of experience
of America (MPA).
MPA in postal
in postal matters,
for Economic
and Legislative
I have been employed
proceedings
since
having worked
1987.
by MPA
I have
at both the Postal
and the Postal Service in a variety of positions.
8
9
I filed direct
testimony
10
volume-variable
11
description
12
MPA-T-2.
in this proceeding,
mail processing
of my background
presenting
two alternative
costs for the Commission’s
and qualifications
is contained
distributions
consideration.
in that testimony,
of
A full
filed as
13
14
II. Purpose
and Scope and Summary
of Conclusions.
15
16
This testimony
rebuts the direct testimony
17
Parcel Service.
18
costs is not well founded and should not be used by the Commission.
UPS-T-2.
Witness
of Stephen
Sellick’s
proposed
E. Sellick on behalf of United
distribution
of mail processing
19
20
.
distribution
method (adopted from Postal Service
witness Degen) cannot be used without also using witness Bradley’s
21
22
Witness Sellick’s proposed
.
The real world of postal operations
requires
distribution
of mail processing
23
costs across MODS pools, not within them as proposed
24
(and Degen).
25
26
l
Costs resulting from inefficiency
they are to be distributed
should be distributed
results,
by witness
Sellick
across MODS pools if
at all.
27
28
In this rebuttal
testimony
I review the important
29
costs in determining
attributable
30
review what this record shows about not-handling
role of not-handling
costs of the classes
I
and subclasses
and mixed-mail
and mixed-mail
of mail. I next
costs.
I show that
1
witness Sellick did not undertake
2
Service witness Degen’s approach
3
treatment
4
witness
5
variabilities.
In other
words,
the
6
recommends
because
witness
Degen’s
I
attribution.
I next describe
8
implement
9
demonstrate
of not-handling
Degen’s
the necessary
to correct
Commission
distributed
11
and witness
12
inefficiently,
13
not distributed
14
handling
15
functions,
16
costs by CAG and basic function.
Bradley’s
and mixed-mail
differences
do
witness
what
distributions
depend
of changes
that witness
costs
I show
results.
Finally,
cannot
on
are incurred
that
Bradley’s
on witness
Sellick
Bradley’s
Sellick
failed
to
from Degen.
I
efficiently,
they must be
with operational
if not-handling
with
witness
keys he adopts
of cost pools to be consistent
they must be distributed
at all.
I review witness Sellich’s
depends
in the distribution
that even if not-handling
across groupings
which
a number
inaccuracies
Postal
costs and show that it is inconsistent
framework,
10
analysis to evaluate
or to suggest alternatives.
and mixed-mail
analytical
substantive
costs
realities
are
incurred
across all cost pools or treated as institutional
I show that witness
costs across
that demonstrate
Sellick ignored
Cost Accounting
it is appropriate
Groups
differences
(CAGs)
to distribute
and
in not-
and basic
mail processing
17
18
Ill. Large Not-Handling
and Mixed-Mail
Costs Play a Critical
Role in Determining
19
Attributable
Costs.
21
Base-year
not-handling
costs in this case are $5.4 billion, and mixed-mail
22
additional
$1.5 billion.
Together,
23
than a billion dollars greater than total mail processing
24
magnitude
25
well over 10 percent of the entire cost of the Postal Service, and ,volume-variable
not-
26
handling
The
27
Postal Service
28
than it does on any other cost segment except carrier street time.
29
Service
30
private sector, the resulting corporation
20
they thus comprise
of these costs in perspective,
and mixed-mail
spends
total
more money not-handling
could “spin off just the not-handling
nearly $7 billion, which is more
direct costs. To help put the
not-handling
costs are about 15 percent
costs are an
and mixed-mail
of total attriibutable
mail in mail processing
and mixed-mail
costs are
costs.
operations
In fact, if the Postal
prolcessing
tasks to the
would rank 212 on the Fortune 500 list, several
2
1
places above Nike, Inc. and only a few places below Sun Microsystems.
2
corporation
3
$10.3 billion
4
revenues
5
exceed that of the State Department,
6
Agency, at $6.3 billion.
would be 70 percent as large as Federal
Express, which had revenues
in 1996, and about one third the size of United
of $22.4 billion.
The resulting
If the “spin off were a Government
Parcel
Service,
of
with
agency, its budget would
at $5.1 billion, and the Environmental
Protection
7
8
The method of distributing
this extremely
9
all classes of mail, but it is critically important to the total volume-variable
10
classes of mail like Priority,
11
these
12
dollars of attributable
13
million more in mail processing
14
distributions
15
variability,
16
increase
17
times the average for all classes),
18
witness
19
coverages
20
also attributes
21
than double
22
Degen’s distributions
small classes
Periodicals,
are enormously
costs.
affected
B.
attributable
Regular
distributions
combined
with
result
of about
while increasing
million
almost $250
volume
in an average
15 percent
UPS witness
rate
(about four
were set at 107 percent.
$370 million more in mail processing
It is obvious
hundred
Neels’ recommended
Henderson’s
would result in a 25 percent rate increase for Periodicals.
my attribution.
costs of small
Sellick attributes
would
Rate subclass
even if coverage
to
than I do; if his recommended
with UPS witness
cost increase
important
Unlike the larger classes,
by a shift of several
costs to Periodicals
together
for the Periodicals
Sellick’s
and Standard
For example, UPS Witness
were accepted
the resulting
large pool of costs is obviously
In fact,
proposed
Witness
Sellick
costs to Prio:rity than I do, more
why UPS witness
Sellick supports
witness
witness Bradley’s variability.1
23
24
IV.
25
costs.
What
This
Record
Shows
and What
Sellick
Ignores
About
Not-Handling
26
21
In spite of the significance
and magnitude
28
contains
no evidence
‘UPS-T-2,
Table 2; MPA-T-2. Exhibit MPA-2C; UPS-T-3, Exhibit UPS-T-36
pertaining
of not-handling
to the causality
3
costs, the record in this case
of these costs.
There is no evidence
either of their relationship
to mail volume or of the reasons for their rapid growth.
the record
is that
does
show
not-handling
operations
and that one component
4
“overhead
- is growing at an inexplicably
5
T-2, and that of witness Stralberg,
6
percentage
7
is not measured
time
of not-handling
is unevenly
- what has previously
rapid rate.2
TW-T-l,)
distributed
across
been called
(See my direct testimony,
It also shows that not-handling
of total costs are disproportionately
What
MPA-
costs as a
higher at operations
where productivity
time is unevenly distributed
across distribution
(see MPA-T-2, Table 5).
8
9
The record also shows that not-handling
10
operations,
sometimes
in ways
that defy explanation
based
on the nature
11
operations.
For example,
12
not-handling
cost is 61 percent of the total cost, while for sorting p,arcels mechanically
13
it is 42 percent.
14
not-handling
15
another.
in the MODS pool for sorting outside
Although
both percentages
is almost 50 percent
are alarmingly
higher in one mechanical
of the
sacks mechanically,
high, it is disturbing
sorting operation
that
than in
How can this be?
16
17
In manual operations,
the disproportionate
18
surprising
19
letter sorting distribution
20
parcels.
21
sorting
22
breaks).
23
over 50 percent larger, at 30 percent.
and inexplicable.
This puzzling
machine,
amounts of not-handling
Not-handling
time is 31 percent
while more than one-third
disparity
not-handling
is also present
is relatively
For the sack sorting machine,
of total costs for manual
higher, at 44 percent,
in BMC operations.
low, at 19 percent
however,
costs are similarly
For the parcel
(before
the comparable
for manual
reallocation
not-handling
of
ratio is
24
25
Not only are the disparities
between operations
26
not-handling
27
total platform costs at MODS facilities,
costs are stunning.
For example,
unexplained,
not-handling
but the absolute
levels of
costs are 63 percent
which means that employees
are handling
of
mail
2 Overhead has increased from 17.2 percent of total mail processing cost in198C to 23.9 percent in
1996. Because this is the first case where the Postal Service has used this particular grouping of the
not-handling category. I cannot quantify how fast it has been increasing.
4
1
pieces, items, or containers
2
the Postal Service suggested
3
platform costs because of time spent going back to a truck to get the next pallet of mail
4
to unload.
5
explain why employees
6
they spend unloading
However,
only about 1 of every 3 minutes, During cross-examination,
that not-handling
the Postal Service,
might be a relatively
witness
Sellick,
should spend more time returning
full pallets and containers
large proportion
of
and I are all at a loss to
to the truck unladen
than
and moving them across the platform.
1
8
In spite of these
9
enthusiastically
facts
and the lack of evidence
supports
within
witness
narrowly
Degen’s
defined
about
restriction
of
witness
not-handling
Sellick
costs
to
10
distribution
11
because
12
operational
13
assumes what is not the case - that it is the same thing to link a set of costs with a mail
14
processing
15
particular
16
of mail processing.
17
of the costs pools and that these linkages
18
cost distributions.
19
distribution
20
differing variabilities
21
the cost drivers for a cost pool.
Finally, witness
22
inefficiency,
explanation
23
costs,
24
handling costs.
“it links the distribution
characteristics
operation
operational
cost pools.
causality,
of ,_. ‘overhead’
He applauds
Degen’s
distribution
(not-handling
mail) costs with the
of mail processing. “3 Like Degen before him, Sellick simply
(in the sense that a statistical
heading)
Witness
system records those costs under a
as it is to link costs with the operational
Sellick is apparently
unaware
characteristics
of the operational
require cross-pool,
rather than within-pool,
As I discuss in sections VI and VII below, these linkages
of mail processing
affect the
costs in two ways: they imply (1) the need to incorporate
into cost distributions
which is one probable
is likely to require
linkages
across-pool,
and (2) the need to distribute
rather
I discuss this in Section IX.
jTr. 26114163.
5
Sellick
costs over all
also seems unaware
that
for the level and growth of not-handling
than within-pool,
distributions
of not-
1
V. Developing
2
Knowledge
or Evaluating
and Expertise
a Proposed
Not Exhibited
Cost Distribution
by Witness
Requires
a Depth
of
Sellick.
3
4
The cross-examination
of witness
5
mail processing
6
operating
I
environment.
8
handling
9
over the past ten years as a consequence
functions
conditions
Sellick confirmed
and data systems
as mail processing
Such understanding
and mixed-mail
or the changes
has moved
is a prerequisite
oral cross-examination
for evaluating
11
perform
12
examples.4
13
even at the most general
14
containers
15
his written testimony
16
mail.+
17
Subclass
18
general conclusions
19
his testimony.7
20
one of the study’s
21
necessary
22
costs in question
23
overhead
24
to examine witness
25
what types of mail would be processed
not-handling
mail even to the extent
Nor was he conversant
level.5
with the definitions
Witness
Notwithstanding
specific
of being
by Foster Associates
the study had reached,
the proper
able to name a few
mail or mixed mail
they are used for, despite
are used for different types of
is that his testimony
conclusions:
(causative)
on the Overhead
the report was consistent
“Additional
attribution
and those other costs which are presently
activities”8
employees
and
Inc. in 1992, he did not know what
or whether
Perhaps even more troubling
to determine
functions
Sellick was unable to name the types of
types of containers
most important
not-
,Sellick admitted on
of identical
the fact that he relied in his testimony
Cost Study prepared
how to distribute
Witness
the Postal Service uses or to say what subclasses
that “different
to an automated
growth relative to direct costs
of automation.
that he does not know what
little about
in the Postal Service’s
increasingly
costs in light of their enormous
10
while
that he understands
neglected
field operating
with
to mention
data are
of the break and subclass
attributed
as mixed mail or
With respect to the MODS system, witness Sellick not only failed
Degen’s grouping
of MODS codes into cost pools, he did not know
at specific types of operations,
4Tr. 26114246.
5Tr. 26114253-4.
sTr. 26114256.
‘Ibid.
BTr. 26/14256-6.
6
how individual
1
operations
should
be
combined
2
combination
of operations
into
cost
pools,
or whether
witness
Degen’s
into cost pools made sense.9
3
4
Witness
Sellick’s
lack of knowledge
5
limited operational
6
developed
a depth of expertise from studying
7
twenty-five
years.
experience.
is disturbing,
Witness
although
Stralberg
not surprising,
given his
and I, on the other hand,
postal operations
have
and costing systems for
8
9
Given his limited expertise,
one might have hoped that witness
10
undertaken
at least some rudimentary
11
grounded.
Therefore
12
assumptions
that underlie
13
validity of the assumptions.10
analyses
it is surprising
that,
his testimony
!jellick
would
have
to verify that his proposals
were well-
while
distribution
admitting
are important,
th;at the
he made no attempt to test the
14
15
Further, witness
Sellick appears
16
based on the activities
17
code he or she is clocked
1s
Degen that employees
19
working
20
often misclocking
to recognize
a clerk or mailhandler
into. 11
is performing
Yet he concludes
are sometimes
is not important,
that correct cost distribution
He reaches
be
rather than what MODS
that the adlnission
not clocked into the operation
this conclusion
should
without
by witness
at which they are
any knowledge
of how
occurs.12
21
22
VI. Witness
Sellick
Should
Have Studied
23
Degen’s
Methodology
25
Witness
Sellick admits in his testimony
26
witness
Degen: the distribution
27
witness
Degen’s
Be Used Without
the Fundamental
Witness
Bradley’s
Issue:
Analytical
Can Witness
Framework?
24
cost pool
that he addresses
of mail processing
categorization
"Tr.
costs. He assumes,
is meaningful
%. 26114262-3.
I%. 26/14241-2.
26/14202.
7
only the subject covered by
even
however,
if witness
that
Bradley’s
1
variability
analysis
is rejected.
It is not clear why he feels no discmomfort making this
2
assumption
3
witness, Degen or Bradley, originated
since Sellick admitted
during cross-examination
that he wasn’t sure which
the cost pool framework.13
4
5
In fact, as stated by witness
6
Degen did not, however,
7
were identified
Bradley, ~Degen ~designated the cost poolsl4
identify the cost drivers for the cost pools.
Witness
The cost drivers
by witness Bradley.
8
9
Witness
Sellick relies on witness
Neels’ rejection
10
return to the previously
assumed variability
11
therefore,
Sellick is also rejecting
12
which, witness Sellick lacks a foundation
that witness
of witness
Bradley’s
levels for mail processing.
witness
Bradley’s
analysis
and a
It would appear,
cost drivers, without
for his distribution.
13
14
There is another fundamental
problem with witness Sellick’s use of Degen’s distribution
15
keys while rejecting
Bradley’s
16
understand
that witness
17
framework
on a number
18
variability
19
cost distribution
20
differing
21
witness Degen’s approach.
results.
witness
Degen’s
Witness
distributions
of levels,
going
results.
Sellick does not appear
depend on witness
beyond
simply
Bradley’s
using
if all cost pools are assumed
between
distribution
and allied
to
attribution
Bradley’s
overall
Sellick does not take into account that Degen’s approach
is violated
variabilities
variability
to
to have the same variability:
operations
are fundamental
to
22
23
When witness
Sellick rejected the overall level of variability
24
he ignored the inherent balance in the analysis between various operations
25
of operations,
26
integral
27
operations
28
allied operations
particularly
to witness
between
Degen’s
allied and distribution
in witness Degen’s approach
is only 71 percent.
operations.
The average
methodology.
found by witness
variability
Bradley,
and groups
This balance
for distribution
is 83 percent, while the average variability
For BMCs, the difference
‘?r. 26/14245-6.
13Tr.26/14261.
8
is
for
is even more dramatic,
with distribution
percent.
operations
at 80 percent
This means when witness
cents of allied operations
pairing
takes
into
interrelationships
Bradley:
“Allied
9
his distribution,
cost for each dollar of distribution
account
activities
the
support
are the ‘mortar’
Because
activities,
and allied operations
Degen performs
nature
between the sets of operations,
sorting activities.
facilitating
variability
of
at only 53
he distributes
operiations
allied
costs,
operations
This point was described
that binds the ‘bricks’
they are all manual activities
This
and
the
by witness
of the direct
and because
85
piece
of their role as
I would expect allied activities to have variabilities
which are, on
average, below direct piece sorting aativities.“l5
10
11
This balance is a fundamental
underpinning
12
fact that witness
13
fact that using equal variabilities
14
distorts witness
Degen’s
15
disproportionate
emphasis
16
costs.
of witness Degen’s approach.
Sellick claims to adopt witness
Degen’s
for the distribution
implementation
and allied grouoings
of operational
on the allied operations
methodology,
interrelationships
in the distribution
Despite the
he ignores the
of operations
and places a
of mail processing
17
18
VII. After Mistakenly
19
Bradley,
20
Interrelationships.
Sellick
Assuming
That He Could
Failed to Correct
Degen’s
Use Degen’s
Distributions
Met,hodology
To Account
Without
for Cost Pool
21
22
As I mentioned
earlier,
operational
23
reflected
24
and by distributing
2s
Degen’s within cost pool distribution,
26
cost drivers found to be significant
in mail processing
characteristics
cost distribution
both by recognizing
costs over all the cost drivers for a cost pool.
witness
Sellick ignored
at 6.
at 61-62.
9
need to be
cliffering variabilities
In adopting
evidence
for both allied and distribution
27
14USPS-T-14
%SPS-T-14
and interrelationships
witness
on the multiple
operations.
1
Witness
Sellick claims to have reviewed
Bradley.16
analyses
the testimonies
Yet he stated on oral cross examination
of both witnesses
that he was not aware
as to how the costs in one cost pool vary because
another cost pool.
He admitted that such relationships
5
seen any analyses
in that regard. 47
6
statements
7
‘Both
8
distribution
operations
9
components
of distribution
addressing
of these
witnesses
addressed
and
the
among
in
are possible but said he “hadn’t
of witnesses
automated,
given the numerous
Moden and Bradley.
interrelationships
the
of any
of what is happening
This admission .is surprising
this topic in the testimonies
Moden and
between
mechanized,
allied
and
and
manual
to his bricks and mortar
analogy,
operations.
10
11
With regard
to the allied operations,
in addition
12
witness
13
and it is in this sense that they are ‘allied’ with direct activities”18
Discussing
14
results
variables
15
explanatory
16
activities.“lg
17
explained
would have ripple effects throughout
the
18
rest of the night in terms of not getting the mail where it has to be to accomplish
the
19
sorting.Qg
Bradley noted: “Allied activities exist to support the direct piece sorting of mail
of his analysis,
witness
Bradley
stated:
power for the allied activities,
Describing
that
the platform
“breakdowns
“All....piece-handling
the
have
revealing the general nature of these support
operation
in that operation
as a gateway
operation,
Bradley
20
21
Witness
Moden
22
“Adding
a sophisticated
23
manual streams also required
24
such
25
resulted.
as moving
also recognized
automated
processing
an increase
mail between
Most support
the support
activities
to handle
in the Allied
lETr. 26/14162.
17Tr. 26114246-49.
1*USPS-T-14 at 16.
%SP.S-T-14
at 62.
qr.
1 II 5532-33.
10
of allied
(operations,
stream to existing
in workhours
operations,
occur
nature
mechanized
for non-distribution
the complex
Labor
stating:
activities,
mail flows
Operations
and
that
- Platform,
Units... ‘CL’1 Witness
and Opening
Moden also noted: “Thlese operations
1
Pouching,
2
as a gateway
3
critical to the success of the outgoing distribution
4
as expeditiously
through
which mail for subsequent
sorting operations
operations
act
must pass.
It is
that mail be processed
___
as possible.“22
5
6
Allied operations
support
7
distribution
operations,
8
processing
facility or to the carrier stations.
9
nature of the allied operations
10
measures
11
All of the distribution
12
allied operations
13
operational
14
witness
15
operations
the distribution
They prepare
the mail for the
move it between them, and then move it for dispatch to the next
workload
is a function
interconnection
should
Witness
operations
measures
way: he used workload
are significant,
showing that the time spent
of piece handl~ings in the distribution
have distributed
the support
as the cost drivers for the allied operations.
and the significance
across distribution
Bradley incorporated
into his analysis in a fundamental
from the distribution
Sellick
operations.
of cost drivers
mixed-mail
in
operations,
This
are reasons
why
and not-handling
costs at allied
operations.
16
17
Just as allied operations
are linked to each other and to the distribution
18
too, are the distribution
19
necessary
20
which must meet critical dispatch
21
piece of mail may receive a manual, mechanized,
22
mail volumes
23
automated
24
these activities will be staffed so that they are available
25
finalized
operations
when automated
linked to each other.
or mechanized
and the availability
environment,
on automated
of machines.
manual activities
are overwhelmed
As critical dispatch
or an automated
As witness
26
2’USPS-T-4 at 21-22
22USPS-T-4 at 22.
2’USPS-T-14 at 58.
II
by mail
times approach,
sort, depending
Bradley
will serve as the backstop
equipment.“23
so,
Manual sorting, for example, is
sorting operations
schedules.
operations,
stated:
technology
a
on
“In an
and
to sort the mail that cannot be
1
Witness
Moden
also recognized
2
automated
3
automation
4
schedules.24
5
isolation
6
variability
7
piece handlings
8
both letters and flats). Both witness Degen, who intended to be consistent
9
Bradley, and witness Sellick, who intended to be consistent
operations,
the interactions
mechanized,
and
noting the shifting of mail to higher levels of mechanization
and
and the dependence
Thus,
treating
of processing
the manual,
makes no sense. Witness
of distribution
operations
mechanized,
Bradley
dependent
have distributed
11
of distribution
mixed-mail
and not-handling
manual,
method on volume levels and dispatch
and automated
recognizes
cost pools
this in his analysis,
in
with the
on the manual ratio (the ratio of manual
to the sum of manual, automated,
10
between
and mechanized
piece handlings
for
with witness
with witness Degen, should
costs across more aggregated
groupings
operations.
12
23
VIII. Incorporating
14
Would
Cost Pool Interrelationships
Lead To Very Different
Into Witness
Sellick’s
Distribution
Results
I5
16
The interrelationships
between
17
mechanized,
18
Sellick should have distributed
19
costs for distribution
20
pools. Had witness Sellick done this, his proposed
and automated
allied and distribution
operations
operations
are well-documented.
the costs for allied operations
operations
across
manual,
and among manual,
At a minimum, witness
across cost pools and the
mechanized,
distributions
and automated
cost
would be very different.
21
22
To illustrate
23
rudimentary
calculations
24
not-handling
costs at allied operations
25
costs are distributed
on the basis of direct tally costs only at allied operations,
26
costs are distributed
on the basis of direct tally costs at all operations.
21
between these two distributions
28
and Standard
*CUSPS-~-4
the potential
impact
on his proposed
comparing
the distribution
distribution,
B.
at 4-5.21.
12
some
of $2.2 billion of mixed-mail
under two different distribution
are very significant,
1 performed
particularly
assumptions:
and
(1)
and (2)
The differences
for Periodicals,
Priority,
1
2
Distributing
allied costs on the basis of all direct tallies, rather than just direct tallies at
3
allied operations,
4
about forty percent and the cost distributed
5
impact for the larger classes is much less (See Table 1 for more detail). It is apparent
6
that witness
I
operations
and the distribution
8
substantial
impact on his proposed
9
Priority Mail, Periodicals,
would decrease
Sellick’s
the cost distributed
assumption
to Standard
that there
operations,
and Priority Mail by
B by nearly fifty percent.
is no interconnection
which the allied operations
distribution,
and Standard
to Periodicals
significantly
overstating
The
between
allied
support,
has a
the costs for
B mail.
10
11
12
Table 1. Comparison
of Distributions
for Allied
13
of Mixed and Not-Handling
Costs
OperationsZs
14
15
16
17
Witness
Sellick admitted
18
also admitted
that an accurate
that choosing
a distribution
25 Calculated fmm data in USPS-LR-23
26Tr. 2W14239.
measurement
methodology
and USPS-LR-146
of costs is important.26
requires
an evaluation
He
of the
available
alternatives.27
appropriate
Yet Sellick
did not look at alternatives
cost drivers for allied operations.
“The importance
of assumptions
4
change
in the assumptions
5
assumptions
6
look at the assumptions
Furthermore,
which underlie
in this case.
in an “analytical
use more
witness Sellick claims that:
an analysis
depends
would have on the final results.*28
are very important
that
on the impact a
It would
appear that
Yet witness Sellick admits that he did not
way.“29
7
8
IX.
Inefficiency
and Slack
9
Costs are Distributed
Time
Require
Cross
Pool Distributions
if Inefficient
at All.
10
11
One of the key questions
12
rapid growth
13
witness
14
evidence
15
testimony,
in this case and in preceding
in not-handling
Sellick
costs is due to inefficiency
did not bother
of inefficiency
cases has been whether
to examine
in postal
this question30
in Postal operations
operations.
although
there
the
Yet
is ample
in the record of this case (see my direct
MPA-T-2).
16
17
In an audit
of allied
workhours,
18
managers
19
were “making”
20
the
21
consequently
22
to allied operations
23
while not decreasing
24
supervisors
25
their tour until the supervisor
paid “little attention...
Postal
the Postal
to LDC 17 [opening
the total budget.31
Service
collects
therefore
“had employees
nlbid.
z8Tr. 26/14195.
?r. 26/14241.
qr. 26/14236-g.
31USPS-LR-H-236.
321d. at 19.
‘National
piece-handling
productivity
increases
measured
Service
data
productivity
productivity
allied
made individual
work assignments.“32
Audit: Allied Workhours’
14
at 10
inattention
is that
operations
at distribution
operation
that postal
as long as they
Assigning
at any other operation.
clock into a non-distribution
Coordination
for
for these operations.
measured
found
units] components”
One cause of this management
no
cannot calculate
Inspection
and
slack labor
operations
For this reason,
at the beginning
of
Further, when
managers
reassigned
never clocked
these employees
into the distribution
high costs in allied operations.
to
distribution
operations.
Specifically,
operations,
Management’s
by increasing
audit found that the Postal Service could reduce opening
5
on occasion
inattention
management
they
has led to
attention,
unit workhours
the
by more than
ten percent. 33
6
7
The
audit findings
suggest
8
operations
is not caused
9
portion of not-handling
that at least a portion
by direct piece handlings
costs at allied operations
10
have nothing
11
causally unrelated
to piece handlings
12
allied
an appropriate
13
handling
14
operations.
costs,
if at all, in proportion
at allied
Rather,
this
is due to the fact th;at some employees
Because
in distribution
distribution
costs
in any operations.
to do at certain times during a shifl.
operations,
of not-handling
thesis costs are just as
operations
method
to direct
as to piece handlings
should
distribute
and mixed-maiil
costs
these
in
not-
across
all
15
16
X. Witness
Sellick
Failed to Consider
17
Functions
Suggest
It Is Appropriate
18
Costs Within
that Differences
to Distribute
Between
Mixed-Mail
CAGs and Basic
and Not-Handling
CAG and Basic Function.
19
20
Part of witness
21
within cost pools is based on the fact that there are differences
in the levels of these
22
costs
of the MODS
23
constructed
24
those pools.
25
believe would be incorrect.“34
among
Sellick’s
rationale
cost pools.
by witness
for distributing
As witness
Sellick
Degen demonstrate
It would be an important
mixed-mail
stated:
different
and not-handling
“Some
levels of not-handling
factor to recognize
costs
pools
costs with
that, and to ignore that, I
26
27
There is also clear evidence
28
mail and not-handling
on the record that there are differences
costs among
CAGs and basic functions,
=ld. at 10.
-See Tr.26114244.
15
in levels of mixedbut witness
Sellick
ignored these differences.
This is curious because one can distribute
and basic function
while avoiding
(and now witness
Sellick’s)
the severe distortions
that result from ignoring
No severe distortions
in witness
Degen’s
many relevant
4
relationships.35
result from distributing
5
basic function because
6
do not oflen move between CAGs or between basic functions
CAGs and basic functions
costs within CAG
method
cross-pool
cost
costs within CAG and
are cleaner separations;
individuals
during a work shift.”
I
8
As shown by witness
Stralberg,
there is wide variation
9
costs in different CAGs, from a low of 4,percent
in the percentage
of total costs in the smallest CAG to 13
10
percent in the largest, CAG A. There are similar variations
11
costs, from a low of 12 percent of total costs in the smallest
12
largest, a difference
in the level of not-handling
13
handling
14
5750) are 9 percent
15
larger in CAG A offices at 17 percent of total costs.37
CAG to 39 percent
Looking at individual
of more than 300 percent.
costs, costs associated
of mixed-mail
with single or mixed shapes
categories
(activity
in the
of not-
codes 5610-
of total costs at MODS CAG B-D offices but almost
100 percent
16
17
Similarly,
there are also large differences
18
respect to basic function at MODS facilities.
19
of costs for the incoming
20
percent for transit,
21
basic function,
basic function,
Also, mixed-mail
in not-handling
Not-handling
27.5 percent
and mixed-mail
costs comprise
for outgoing,
costs are 14.2 percent
16.3 percent for outgoing,
costs with
23.5 percent
and nearly fifty
of costs for the incoming
and 22.8 percent for transit.3
22
23
XI. Conclusion
24
25
This rebuttal
26
extremely
21
of mail.
testimony
important
shows that not-handling
in determining
the attributable
It also shows there is little evidence
35Tr.26/13674.
%Tr. 26113626.
"Tr. 26/13663.
16
and mixed-mail
costs are large and
costs of the classes and subclasses
on the record explaining
the cause of the
1
not-handling
costs, their magnitude
2
mail processing
3
uncritically
accepted
4
performing
any independent
operations.
and growth, or their distribution
My testimony
USPS witness
among
the various
also shows that UPS witness
Degen’s
distribution
Sellick has
of these costs without
analysis or having the knowledge
or background
either
to do so.
5
6
Witness
Sellick
was
7
approach
while
8
ignored
9
clearly demonstrated
incorrect
rejecting
operational
in assuming
witness
reality
Bradley’s
by confining
dependencies
that he could
adopt
analysis.
Furthermore,
cost distribution
within
between allied and distribution
witness
Degen’s
witness
Sellick
ccst pools,
despite
operations.
10
11
This testimony
and my previous
12
analytical
and statistical
13
proposal.
In contrast,
14
consistent
15
from past practice
16
appropriate
testimony
considerations
the distribution
with operational
in this case, MPA-T-2,
dictate
against
advocated
reality, are more reliable
in light of uncertainty
adoption
by witness
statistically,
show
of witness
Stralberg
that both
Sellick’s
and me are
and limit departures
as to the use of not-handling
costs and their
distribution.
17
18
Witness Sellick’s proposed
distribution
19
should not be used by the Commission,
of mail processing
38Calculated from data in USPS-LR-H-23.
17
costs is not well founded
and
CERTIFICATE
OF SERVICE
I hereby certify that I have this date served the foregoing
participants
of record in this proceeding
practice.
Washington, D.C.
March 9. 1998
in accordance
document
upon all
with section 12 of the rules of