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

Executive Summary

This report was prepared for the National Library Service for the Blind and Physically Handicapped (NLS), The Library of Congress. It presents the results of analyses in which the costs for distribution of new Digital Talking Book Machines (DTBMs) incurred by the United States Postal Service (USPS) and NLS using two different methods were estimated and compared: (1) the "Current Method," in which the machine manufacturer (Producer/Distributor), an NLS contractor, will ship new machines to Machine Lending Agencies (MLAs) per NLS instructions, the MLAs will store the machines in their facilities, and ship them to readers as necessary on a continuous basis; and (2) the "Alternative Method," in which the Producer/Distributor will store new machines in their facility and ship them on a continuous basis directly to readers as instructed by the MLAs, but not to exceed inventory allocations for the MLAs as directed by NLS.

It was assumed that new DTBMs would be produced at a rate of 120,000 units per year for five years followed by production at 30,000 units per year for five years; thus a planning horizon of 10 years was used. It was further assumed that machines will be made available for distribution in biweekly lots after acceptance by NLS QA inspections. The expected weight, volume and dimensions for both the individual and Overpack DTBM packaging, Serial Number labeling conventions, battery installation protocol, and multi-machine shipment protocol was provided by NLS. End of FY 2006 readership statistics were provided by NLS, and the expected DTBM allocations for MLAs were derived. It was assumed that distribution of DTBMs by the Producer/Distributor under either method would be from a location in close proximity to a West Coast port; for the analyses, the Port of Long Beach, California was selected as this location.

Three areas of potential cost differences under the two methods were examined and estimated: (1) delivery costs incurred by USPS, with calculations using both Parcel Post and Media Mail rates as proxies for the Free Matter delivery of DTBMs; (2) storage, picking & packing costs incurred by the Producer/Distributor, using Fulfillment by Amazon (FBA) rates as proxies for commercial fulfillment rates, which would be borne by NLS; and (3) information systems modifications costs, which would be borne by NLS for enhancement of the READS system and for incremental investments required in the Producer/Distributor’s information system.

As shown in Exhibit 1 on Page 10 of the report, implementation of the Alternative Method cannot be recommended on economic grounds whether USPS Parcel Post or Media Mail rates are used as proxies for the costs of Free Matter delivery. While under the Parcel Post and Media Mail proxies the USPS would save about $405,000 and $1,028,000, respectively, through implementation of the Alternative Method over the 10-year planning horizon, the NLS would incur about $622,000 in additional costs for contracted storage and picking & packing services and $450,000 in information systems modification costs to be performed by contractor. There would be an increase in total costs of either $667,000 or $44,000 depending upon the proxy used.

From a service perspective, the NLS 5-day objective for machine delivery time, largely met using the Current Method, cannot be achieved for service to all parts of the 48 contiguous states using the Alternative Method from Long Beach or any other single location. Delivery times to readers in Alaska, Hawaii, Puerto Rico, and the Virgin Islands will be likely take 2-to-5 weeks.

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Posted on 2007-09-27