Interview CEP Research: PostNL cuts costs and boosts quality with Asian offshoring

Interview CEP Research: PostNL cuts costs and boosts quality with Asian offshoring

20 december 2011
CEP Research recently interviewed Mario Suykerbuyk, Director PostNL Shore. His story is about the Dutch postal operator PostNL which has successfully reduced operating costs and improved quality by offshoring video coding of illegible addresses on letters and parcels to Asia.

Mario Suykerbuyk, Managing Director of Shore, told CEP-Research how the innovative solution came about: "In October 2009, we launched a costsaving programme at PostNL to see if we could optimise our costs and primary processes. One idea involved video coding mail, using optical character recognition (OCR) to automatically read the address on the envelope. We still have around a million items every day that have to be coded by hand. Sometimes you can't read the handwritten address, or the house number and postcode do not correspond with the address. If you type in the wrong combination, the letter is sent to the wrong house. It then has to be sent back to the sorting centre, sorted again and delivered to the right house: a very costly process."


"We wondered whether we could do it cheaper, centralise it, take it to Eastern Europe or even offshore it to Southeast Asia. We explored the opportunities around the globe, starting with a long list of sixteen potential partners, gradually reducing it to six and later to three. We then tested these during the peak Christmas season, before finally choosing a provider that really delivers on costs."


Following the decision, PostNL set up its wholly owned subsidiary Shore in partnership with SPi Global Solutions in the Philippines. Shore digitises a range of hand and machine written documents, from invoices and reply cards (from magazines for example) to special offer forms and envelopes. Video coding services are offered for letters/flats, registered and international mail, as well as parcels. Under the partnership with SPi Global, PostNL offshored its letters and flats to the Philippine capital Manila.


The video coding solution scans addresses on mail items that cannot be read automatically by the sorting machine and sends this information over a fast and secure data connection to the other side of the world. Professionally trained data specialists then enter the correct addresses so that the sorting machine can sort the mail properly. This enables PostNL to rapidly increase the number of addresses processed by more than 500% within 15 minutes, offering ultimate flexibility.


"We especially benefit from cost reduction, cutting labour expenses by 60 to 70% in comparison with those in Western Europe. But what we didn't expect was the sudden sky-high improvement in our quality. It was up 3.5% right from day one and went up even further to 8%." The 8% quality gain means that 80,000 more letters a day are sorted correctly. "The cost effect on labour was already significant, but the cost effect on quality was even better. No matter how much mail there is, we can always process it," he said.


What's more, making better use of video coding capabilities has cancelled out the need for the sorting code previously used to match large-volume letter mail to the information required for automatic sorting. The initial results show that this new process offers additional advantages, with sorting equipment failures dropping from 7 to 4%. The solution is well adjusted to volume fluctuations, allowing easy handling of volume deviations in daily planning, volume peaks and lows during the course of the year, and delays due to weather or traffic. Multiple video coding sites ensure real-time delivery; in just 0.5 seconds images are transmitted to PostNL's Asian sites with a turnaround time of less than 15 seconds in the online process.


Thanks to the video coding system, PostNL has achieved a total cost reduction of 70% over an 18-month period. "We started off with letters and flats. To boost business even more, we are now offering our OCR video coding solution to other companies, currently negotiating with various national postal operators in Western Europe. We have the infrastructure, we have the web coding platform and we are now inviting other postal companies to use it so that we can share the costs together."


The company also does video coding for parcels. Since June 2011, PostNL Parcels has been carrying out

the video coding for all its Dutch sorting centres in the Philippines and Vietnam. Video coders in Asia enter

the parcel address details that the sorting machines are unable to read. The details, transmitted as an image, have to be entered and sent back to the sorting centre in the Netherlands within just 18 seconds. Parcels can then be sorted automatically by machine. Tens of millions of parcels will now be coded in this way every year.


"Video coding is a growing business and, despite an overall decline in letter volumes, it is likely to remain stable because C2C and C2B mail is not being affected as much. He adds that Shore is now cooperating with different companies including big names in the Netherlands and Western Europe, like Office Depot and market research company GfK.


Suykerbuyk says that Post NL Shore has grown rapidly, now employing thousands of people at three sites in Asia and serving over 20 customers in its first year of operation. The company will have processed over 500 million images in 2011 and Suykerbuyk expects the company's revenues to nearly double in 2012.