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Comparison of Costs for the Distribution of New Digital Talking Book Machines (DTBMs)

Section 3 - Storage and Picking & Packing Costs

An analysis was performed to estimate the difference in storage and picking & packing costs incurred by the Producer/Distributor under the two distribution methods, which is shown in Appendix 15. This analysis was exclusive of: (1) the cost to actually delivery a machine (which would be borne by the USPS via Free Matter); and (2) the incremental costs for modifications to the Producer/Distributor’s information system, if any, in order to effect implementation of the Alternative method.

Commercial rates for fulfillment services, specifically for storage and picking & packing, were obtained from Amazon.com’s "Fulfillment by Amazon" (FBA) business (obtained from the Amazon.com website). For each method of new DTBM distribution, storage requirements and throughput rates were determined, unit prices were applied to the estimated storage and throughput requirements, and estimated costs were calculated. In the Current Method, the handling unit for these fulfillment functions would be the Overpack, while for the Alternative Method it would be the individual carton.

For the storage calculations, it was assumed that all inventory approved for distribution by NLS will be distributed by the Producer/Distributor in 2 days under the Current Method and 14 days under the Alternative Method. One major difference in the complexity of distribution is the average number of packages in a biweekly distribution, which will be 577 for the Current Method versus 4,615 for the Alternative Method. The second difference is that, under the Current Method, once NLS has issued QA approval for distribution of a biweekly-inspected lot, the entire lot (577 Overpacks) could be "immediately" distributed to known entities (the 57 MLAs) in known locations (the MLA addresses) in known quantities (the MLA quotas for the lot), while under the Alternative Method the Producer/Distributor must compile 4,615 orders for individual machines arriving from 57 MLAs prior to shipping the machines to 4,615 readers/locations. It was therefore assumed that biweekly inventory lots would be depleted (distributed) uniformly over a 14-day period, with no safely stock, under the Alternative Method.

For the picking & packing calculations, the FBA rate of $1.00 per item handled was used for the Alternative Method, because the individual DTBM carton will correspond to an item with the FBA weight and size criteria for the same. The FBA rate for the Overpack would be $3.00, being considered an "Oversize" item (due to its weight, i.e., over 20 lb, rather than its size). However, a rate of $1.50 per item handled, i.e., 50% of the FBA price for an Oversize item, was used for the analyses of Overpack handling under the Current Method. The rationale for this adjustment is because the procedures to be used for distribution will be greatly simplified in the Current Method relative to those that would be used under the Alternative Method, as explained above for the storage calculations.

It is estimated that the Alternative Method will cost the Producer/Distributor, and thus the NLS, approximately $622,000 more over the 10-year planning horizon than the Current Method for the storage and picking & packing of new DTBMs.

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Posted on 2007-09-27