UNIVERSAL POSTAL UNION

POSTAL OPERATIONS COUNCIL

CEP 2008.1–Doc 10j.Add 2.Annexe 1(CEP GP QS 2008.1–Doc 8.Annexe 1)

COMMITTEE 3 (OPERATIONAL ISSUES)

Quality of Service Project Group (QS PG)

UPU Global Monitoring System (GMS) project report

1 Subject

Update on the UPU Global Monitoring System (GMS) project.

References/paragraphs

§§ 1 to 101

2 Decisions expected

The POC is invited to:

– approve the GMS project report;

– approve the GMS technical design (Annex 2);

– note the proposed principles to progress with the governance proposal that will be submitted to the 2009 POC;

– approve the procurement methodology;

– approve the methodologies for the pilot and final implementation. A final implementation plan will be submitted to the 2009 POC;

– approve the standards and interoperability methodology; and

– approve the financing model.

§ 102

I. Introduction

1 The need to improve the overall end-to-end quality of service of international mail was recognized by the 1999 Beijing Congress. Congress therefore decided that there should be a link between the quality of service that designated postal operators (DPOs) offer each other and terminal dues payments. A mail measurement system was designed and implemented in January 2005. This system was designed with the needs of industrialized countries in mind and was based on existing monitoring systems. The 2004 Bucharest Congress further asserted the need for the link between quality of service and terminal dues. A team was thus formed and charged with developing an affordable global quality of service monitoring system that would be able to accommodate the diverse needs of the UPU member countries.

A. Distribution of work between TD PG and QS PG

Decision by 2007 POC

Hd30.1.2006

2

2 The April 2007 POC approved in principle the design concept and noted the management structure, including financing arrangements for the new Global Monitoring System (GMS).

3

3 To progress the project, the QS PG SC was instructed by the April 2007 POC to undertake the following activities which include finalizing the proposals for:

– System design, including the drawing up of technical standards/specifications to facilitate procurement.

– Coordination with the UPU's Postal Technology Centre (PTC) and other organizations such as International Post Corporation (IPC) on technical issues.

– Procurement procedures and processes (in line with existing UPU procurement regulations).

– Establishing the criteria for legal engagement (of the member countries and contractors).

– Financing arrangements of the GMS.

– Establishing links with the Quality of Service Fund.

– System set-up plan.

– Arrangements for implementing a pilot plan.

– Communication plan.

– Development of the GMS Users Guide.

– Establishment of a GMS Users Group.

– Preparation of the Global System Board statutes for the first Users Group meeting.

– Preparing draft Congress documents to be presented to POC prior to the Nairobi Congress.

4 The April 2007 POC also instructed the TD PG and its subgroup PT 3 to ensure the terminal dues link to quality of service by developing the following activities in the context of the GMS:

– determine the requirements that the GMS shall meet from a terminal dues perspective;

– validate the GMS proposal against the provided requirements;

– setting terminal dues rules;

– setting standards;

– setting targets.

GMS core principles

– Definition of business requirements.

– Establishing clear governance structure.

– Establishing technical standards and interoperability.

– Developing a viable and secure financing structure.

– Ensuring a clear and transparent procurement process based on UPU rules and in accordance with CA regulations.

– Ensuring smooth transitional arrangements between the current system and the new GMS.

– Validating the GMS project framework from a legal perspective.

Relevant stakeholders

– Terminal Dues Project Group and its subgroup PT 3:

Performance reports to the quality of service linked terminal dues system.

4

– Quality of Service Project Group, Letter Mail Programme:

Provide information on inbound performance on a country-by-country basis.

– Quality of Service Fund:

Provide information to monitor quality improvement in relation to projects financed through the QSF.

Project organization

5 The QSPG SC created specific project areas to progress the GMS project:

– communication;

– technical design;

– governance;

– legal matters;

– Nairobi Congress proposals;

– procurement;

– set-up, pilot and final implementation;

– standards and interoperability;

– financing.

II. Communication

6 In the area of communication, the QS PG SC ensured that:

– close coordination was maintained with the TD PG and its subgroup PT 3 in order to ensure that the GMS would meet the requirements from a terminal dues perspective;

– consultation with other POC groups, such as the QSF Board of Trustees and the AES UG, was made to obtain relevant information relating to the financing model and the standards and interoperability in the area of RFID;

– consultation with service providers was established in order to validate technical assumptions when developing the technical design.

7 Through the coordination with the relevant UPU Groups, it was established that the GMS would be able to achieve the following objectives:

– facilitate the linking of delivery performance of letters to terminal dues so as to drive service improvements;

– provide reports to enable DPOs to take appropriate actions to rectify weaknesses identified in their operations;

– serve as a tool for evaluating the achievements of DPOs in implementing projects financed through the Quality of Service Fund.

III. GMS technical design

B. General concept of the GMS

8 The objective of the measurement system is to provide, for each participating DPO, precise diagnostic quality of service performance results for inbound mail that will be linked

5

to terminal dues remuneration. The measurements will consider the time required by the DPO of destination from the arrival (handover point) of the test items to their final delivery.

6

9 To calculate a DPO's performance, the system will compare the measurement results with delivery standards duly accepted by the designated UPU body. These standards must be compatible with the published domestic delivery standards of each DPO.

10 To minimize measurement costs, another basic principle is that only first class letter mail will be measured. The system is designed to meet the fundamental needs of the terminal dues system requirements. It allows better temporal control of the statistical design than using non-priority letter mail.

11 The GMS is based on external measurements, meaning that external panellists will receive the test items and will require that their addresses remain unknown to the given DPO. It will also be based on the use of globally applicable RFID diagnostic technology. This technology allows the identification of the arrival of test items prepared without any external marks that could be identified by postal employees.

12 To guarantee maximum flexibility for the future as well as to be able to provide the UPU community with reliable information (in terms of concept and costs), the proposed GMS is designed as a stand-alone technical specification of the system (i.e. it is not dependent on other measurement systems or conditions). It must be self-sufficient in the data analysis, management and publication. At a later stage the possibility of taking advantage of synergies with other systems might be considered.

C. Key principles and requirements from POC, TD PG and QS PG

13 To achieve these goals, a measurement system has to be developed and put in place. The GMS should adhere to the following basic principles:

– customer-driven;

– globally applicable;

– affordable;

– transparent and fair;

– sufficiently accurate and reliable;

– external to UPU members;

– diagnostic;

– locally relevant;

– simple;

– continuous.

14 In view of these key principles and requirements, the GMS Development Group (GMS DG) presented initial GMS technical design proposals to PT 3, which were noted. PT 3 set out a list of further principles as guidelines for the GMS DG to pursue its technical work. These guidelines included:

– ensuring that all the participating countries be measured through at least one permanent flow;

– providing for the achievement of the minimum statistical accuracy, between 1% and 5%, according to DPO categories, i.e. the bigger the inbound volumes the greater the accuracy;

– ensuring that non-permanently measured flows be weighted in a way that smaller countries' flows cannot be neglected, i.e. pool results should be weighted against the permanent flows according to the total volumes coming from countries in the pool;

– ensuring that GMS fulfil the above-mentioned principles at the minimum cost.

7

D. GMS technical design

15 A team was formed and charged with developing an affordable global quality of service monitoring system that would be able to accommodate the diverse needs of the UPU member countries. The GMS DG was to develop a proposal on the technical specifications of such a comprehensive global system.

16 The team had carried out its work in line with its mandate and proposed a solution that balances the need for a sufficient statistical accuracy and affordability for all UPU member countries.

17 The GMS envisages a monitoring system based on test letters. The test letters will simulate real mail flows between DPOs. Radio frequency identification (RFID) transponders will be inserted in each test letter and will be automatically recorded by RFID gates or readers installed at the office of exchange (OE) or air mail units (AMUs) of each mail receiving DPO. The data read at the OE will signal the start of the study. The test letters will then be processed like other mail and be sent to external panellists. The test letters will be such that they are externally indistinguishable from other mail and therefore minimize the risk of being given special treatment by the receiving DPO. The panellists will then record key aspects of the test letter, such as when it was received, what condition it was in, etc. This last record from the panellist (when compared to the OE read) enables the duration or the quality of service of the inbound stretch to be determined.

18 The GMS shall be inbound mail volume driven. The underlying principle is that the higher the inbound mail volumes, the higher the terminal dues at risk – therefore the higher the accuracy of the results required.

19 DPOs will, as with real mail, receive test mail from all countries of the world. The test mail will be organized into permanently measured flows and pools. Permanently measured flows will represent high volume flows to the receiving DPO. Pool flows will represent largely medium and marginal flows and will be broken further into two pools – Pool 1 and Pool 2. The pool mechanisms ensure that the importance of the flows is taken into account and a sufficient correlation is provided between the importance of each test item and the real mail volume it represents. This also ensures that, from a global perspective, marginal flows from smaller countries are pooled so that when combined, their total pool volume is significant enough. The pools give some protection to DPOs with low mail volumes, which might otherwise have their mail disregarded (as they would be insignificant when compared to large flows from large countries).

20 The number of permanent links has been determined to provide a fixed amount of coverage for each DPO category level. The number of samples for the permanent links is determined from the expected coverage. The expected coverage has been determined from the profile of gross domestic product (GDP) compared with the UPU total GDP. The GDP was chosen as a traditionally accepted proxy for relative global mail volume in the absence of actual mail volume data.

21 The design has to provide information for operational purposes as well as cover as much of the country as possible for universal service obligation (USO) principles. For this reason, the city distribution is the sum of the number of OEs and an assigned number of the most populated cities.

22 The number of valid test mail items is determined by using the binomial model. There are no approved alternatives at this time. The numbers have been adjusted so that the results are robust against bias arising from the simplified design structure, particularly with respect to the sending country and destination city structure. The assumption is a percentage on time of 85%.

8

23 The following graphic outlines the main elements of the GMS:

DPO 1

DPO 2

DPO 3

DPO 4

DPO n

Pool 1

Pool 2

…

Per

man

ently

mea

sure

dlin

ks

Office of Exchange (OE) or

Air Mail Unit (AMU)

Proportionalallocation of items

over permanent links

Rotating mechanism within Pools

Poo

ls

Delivery StandardJ+n

City 1

City 4

City 3

City 2

City n

DPO 1

DPO 2

DPO 3

DPO 4

DPO n

Pool 1

Pool 2

…

Per

man

ently

mea

sure

dlin

ks

Office of Exchange (OE) or

Air Mail Unit (AMU)

Proportionalallocation of items

over permanent links

Rotating mechanism within Pools

Poo

ls

Delivery StandardJ+n

City 1

City 4

City 3

City 2

City n

24 At the heart of the GMS will be the sending and receiving of test letters via external panellists. The test mail piece shall be a P&G mail format priority mail letter weighing up to 50 grammes. Dropper external panellists will "drop" or insert test letters for external receiver panellists. Receiving will take place either at door address or a P.O. box – whichever is the norm for the country. Panellists will have to be recruited and trained very carefully. Similarly, rigorous data validation, data analysis and reporting are required. The GMS envisages the use of the Internet by panellists for responses. There will be tools that carry out basic logic checks and challenges as data are entered. Powerful analysis and reporting tools will help not only monitor and manage panellists' performance but provide mechanisms for DPOs to query and have their queries resolved expeditiously.

25 The GMS foresees many in-process checks such as panel response validations. There will also be external checking in the form of an external audit. This is to help eliminate any gaps that might exist and ultimately provide assurance to all stakeholders.

26 The GMS will accommodate increased statistical accuracy by offering a number of "boosting" options. Boosting or the sending of additional test items will be permitted at different levels from an individual flow or link to multiple flows or even upgrading the DPO category level to one with higher volumes and an associated higher accuracy. As a general principle, the DPO requesting the boost will cover any ensuring costs. Boosting will also have to be for complete measurement periods, i.e. January to December, and follow the distribution requirements of the regular study design.

27 A key aim of the GMS is to provide an affordable global measurement system. The system has been designed in such a way that the costs are appropriate to the DPO level and, therefore, the DPOs mail flows. A summary of the costs per classification type is provided below.

Estimated total costs Level A Level B Level C Level D Level E

One-off costs 80,000 EUR 55,000 EUR 41,500 EUR 12,000 EUR 9,500 EUR

Annual operating costs

83,000 EUR 33,000 EUR 20,000 EUR 8,500 EUR 3,300 EUR

Table 1 – Cost estimates.

9

IV. Governance

E. Objective of the creation of GMS governance structure

28 The GMS governance structure proposal intends to provide a comprehensive model that will address the various activities involved, the role of the various participants, the relationship among relevant parties (stakeholders), and the decision-making process necessary to manage the system.

F. Subjects to be considered in creating the GMS governance structure

29 Considering that the GMS has been planned and developed by the QS PG SC and GMS DG with the supported of the International Bureau, and noting that it could eventually be administrated by the International Bureau of the Universal Postal Union, the following are among the subjects that will continuously be given full consideration from a governance point of view:

– trust;

– responsibility;

– fairness;

– neutrality;

– transparency (information disclosure);

– accountability;

– clarification of responsibility of each party.

G. GMS organizational structure and role of each stakeholder

30 Taking the decisions of all the past documents and the results of the past QS PG SC meetings into account, the GMS governance structure and role of each stakeholder shall be created as follows:

User Assembly

31 A User Assembly shall comprise DPOs that use the GMS.

Global System Board (GSB)

32 The Global System Board (GSB) shall be established, replacing the GMS Interim Project Group. The Board shall comprise seven member countries, to be elected by the POC in line with the following concept:

– five members, one (or two) from the UPU's geographical regions: the Western Hemisphere (Region I), Eastern Europe and Northern Asia (Region II), Western Europe (Region III), Southern Asia and Oceania (Region IV), and Africa (Region V); and

– two at-large members.

Validation Committee

33 The Validation Committee shall review operational data and any anomalies occurring in the system. All reviews will follow the guidelines set with this respect by the Global System Board. In order to ensure quick and timely review processes and, ultimately, recommendations and decisions, the Validation Committee will work and meet independently as occasion demands.

10

IB Quality of Service Unit

34 A dedicated unit will be established within the International Bureau to manage GMS in liaison with the GSB, the Validation Committee and contractors.

Contractors

35 Contractors will perform several tasks ensuring the running of the system. Those tasks will be defined at a latter stage.

Internal Auditors

36 The Internal Auditors established within the UPU International Bureau shall be entitled to and obliged to examine and audit financial documents and contracts, other pertinent documents and records of the GMS and to report to the International Bureau.

External Auditors

37 External Auditors will be responsible for auditing the GMS and, in particular, for seeking the compliance of providers.

V. Legal

38 This project area ensures that the project framework complies with the Acts of the Union and UPU Regulations.

VI. Nairobi Congress proposals

H. Report to the Nairobi Congress

39 This report (Doc 10j) summarizes the GMS, in line with the management summary of the GMS technical design. The purpose of this report is to provide the fundamental information to enable Congress to understand the GMS.

I. Congress resolution

40 The Nairobi Congress will be requested to approve the Congress resolution relating to the GMS (Doc 10j Add 1).

VII. Procurement

41 The POC has instructed the QS PG SC to submit a comprehensive GMS proposal and respective implementation plan, including the procurement process. The overall proposal for procurement shall be in line with existing UPU regulations for open call for tenders. This document will outline the proposed framework to progress the procurement process, in accordance with a series of stages.

J. Planning procurement

42 Planning procurement requires the QS PG SC Procurement Group to identify the information they will require in order to determine the proper procurement process for the

11

GMS. In addition, this Group will be provided with the set of requirements that served as the basis for procurement from the GMS DG to validate the requirements.

K. Procurement methodology

43 At this stage, the procurement methodology will be proposed for submission to the POC. The proposal will detail the principles adopted for procurement, the planned steps to progress procurement according to this document, and the decisions expected by the respective UPU bodies with regard to the three procurement phases.

POC decision

44 In the event the POC approves the procurement methodology, work associated with developing the procurement process will commence.

Development

45 At this stage the proposal(s) will be prepared to define what part of the GMS system should be insourced and outsourced.

46 The activities recommended to be insourced will be taken up by the UPU bodies, in accordance with the Governance Group's proposal(s). The activities recommended to be outsourced will fall under the procurement process.

Final proposal

47 A final proposal will be produced, which describes the business case for procurement (pilot and phased implementation plan). The business case should identify the number of DPOs expected to participate in the pilot and in the phased implementation plan, and the expected number of items to be purchased – gate readers, transponders, number of panellists, number of test letters, etc. – as well as the services to be outsourced – gate installation, diagnostic monitoring, panel management, etc.).

48 The proposal should also identify a viable financing plan to ensure that financial resources are available for procurement.

Preparation of call for tender

49 In order to be most efficient, the preparation of the call for tenders would start in order to ensure that if Congress approves the GMS Congress resolution, the call for tenders can be immediately initiated.

Congress decision

50 Should Congress approve the GMS, the work associated with rolling out the procurement process will commence, in accordance with UPU financial regulations.

Issue of call for tender

51 Bidders will be invited to tender, in accordance with UPU financial regulations.

Bids reception and bids evaluation

52 The Tenders and Procurement Committee (TPC) of the International Bureau will receive the tenders submitted by bidders. The TPC will request the GMS Interim Project Group to assist in evaluating the bids. The GMS Interim Project Group might seek assistance from DPO experts to proceed with this task.

12

Recommendation on selection of bids

53 The GMS Interim Project Group will report to the TPC for evaluation of the offers.

Drafting contract(s) and signature

54 The TPC will prepare a final report for endorsement by the Director General of the International Bureau, who will make the final decision on the selection of the bidders followed by the signing of the contracts.

VIII. Set-up, pilot and final implementation

L. GMS pilot project

55 The GMS pilot is intended to start before the roll out of the GMS. During this pilot the actions of the DPOs, suppliers and UPU IB can be tested and evaluated. Results of the pilot might lead to adjustments in the GMS. The duration of the GMS pilot is recommended to be six months. However, further assessment with potential service providers will be required to validate the assumption that the first three months will be required to install equipment, recruit and train panellists and set up communications interfaces and databases, while the remaining three months will serve to run the test. If this is not feasible, additional time might be required.

56 The pilot project depends directly on other activities like financing, procurement and the signing of the contract(s). The principle here is that selected supplier(s) run the pilot before the final implementation of the GMS.

57 The pilot project can be seen as a turn-key project to test equipment, software, development and training activities, etc., in a real environment.

Definition/objectives

58 The pilot project should demonstrate the abilities of the industry in the field of real-time monitoring networks. A pilot implementation is a necessary stage to demonstrate smooth operations and practical needs, in accordance with the theoretical plan of any new development aimed at wide community use.

Scope

59 The criteria for choosing countries for the pilot include:

– voluntary DPOs, which are ready/able to use resources;

– DPOs with differences in volumes, culture, actions in Customs, etc.;

– approximately 10 to 15 DPOs, covering different geographical areas;

– potential world regions to be covered:

Africa,

Arab countries,

Asia,

Central America.

Operations

60 It is important at this stage to clarify and operate within the basic requirements and standards of the GMS.

13

61 The measurement test process is conducted by the supplier(s) and would include:

– Panel management:

recruiting process;

training process;

control mechanisms.

– Test item management:

correct addresses, use of common font types:

– public addresses used in different countries:

i P.O. Box,

ii street addresses (no addresses from companies should be considered to avoid the effect of internal mail processing),

envelopes, layout of the envelope, in accordance with the rules of the sending DPO;

transponders;

production and sending of the items;

transponder management: sending and loss of transponders;

communication with UPU IB, DPOs and regulators:

– languages,

– resources.

– Data management:

data flow monitoring;

data collection;

data analysis;

– Summary analysis report:

daily;

weekly;

monthly;

quarterly;

final report.

M. Preparation phase for suppliers prior to starting

62 To be coordinated by the National Coordinator of each DPO with UPU IB:

– site survey process: measurement at the handover point, customs activities;

– technical restrictions, rules at the airports;

– possible pre-installation work done by the operator;

– data flow, fixed or wireless line, sending of the data.

63 Essential from DPOs and regulators:

– right and correct information given by DPOs;

– possible pre-installation work done by DPOs.

14

N. Evaluation

64 The global process is to be monitored and evaluated. The objective of evaluation is to assess the operational processes, problems, failures, over expectations, communication channels. Pilot assessment and evaluation is done quarterly over two phases – first three months and second three months. The direct data results at this stage will not be taken into account for the calculation of terminal dues.

65 The areas to be evaluated will include:

– supplier(s) operations;

– supplier(s) prior activities (i.e. training, installation, distribution, etc.);

– data integrity

– communication channels;

– system modification and improvement – following the assessment report.

66 The evaluation should be carried out by a third party (i.e. UPU/GMS Board, etc.).

67 Activities such as gate installation can be evaluated immediately after the installation, whereas other activities like panel and data management will be evaluated during the subsequent pilot phase.

O. GMS final implementation

68 Implementation of the GMS can start right after the pilot phase. DPOs that have participated in the pilot can continue to run the system. Other DPOs need to undertake certain actions before joining the GMS.

69 For DPOs not participating in the pilot it is recommended to consider a short period to evaluate the operators' activities. It may, therefore, not be possible for other DPOs to join the GMS immediately after the pilot phase. However there are no technical restrictions for DPOs to join the GMS, provided that they have shown the capability of participating and contractors ensured the required guarantees to measure those DPOs.

Process

70 The 10–15 DPOs participating in the pilot should automatically join the GMS after the pilot.

71 After the pilot, the GMS should be ready to start accepting other DPOs that wish to join. Newcomers will require a three-month preparation period, which will cover technology installation, establishment of data process, panel set up and national coordinator training.

Evaluation

72 The project should be evaluated continuously. The main responsibility will remain with the IB and GMS governing groups. All reporting coming from the IB and the supplier(s) should contribute to a continuous evaluation of the system. Detailed reports on the GMS project on a quarterly and yearly basis are also needed.

P. Future plans and expectations

15

73 Since the pilot and implementation are dependent upon other aspects of the GMS project, the following critical areas need to be considered:

– funding;

– ownership;

– technology and products;

– data validation and accreditation;

– process for DPOs of all UPU member countries and territories to join and capacity of the GMS (hardware/software/management);

– legal aspect;

– guidelines for set-up and pilot.

74 A user guide will be prepared for those DPOs willing to take part in the pilot.

IX. Standards and interoperability

75 As described in the GMS technical design, the measurement will involve the use of RFID technology to read the entry of the test letters at the entry point of the destination DPO. The main objectives of this project area are to identify standards for RFID that lead to the most cost-effective technical solutions and to ensure interoperability. This last objective is particularly important to safeguard investments already made by DPOs in certain RFID infrastructures in the area of quality measurement. In this connection, there are two types of standards to be considered:

– standards for the use of RFID technologies in the context of the GMS;

– standards to ensure that different RFID technologies can interoperate in the context of the GMS.

76 The planned methodology to progress with this project area is as follows:

– Standards for RFID:

Identification of available RFID technologies:

– Presently the suppliers offer different types of RFID technologies. In generic terms, three types of RFID technologies are considered: active, semi-passive and passive.

Economic comparison:

– At this stage, it is intended to evaluate the cost related to each type of RFID technology according to the GMS requirements. The cost comparison will facilitate the selection of the potential use of particular technology.

RFID test:

– RFID active/semi-passive technologies: existing quality measurement systems using these technologies have proven their effectiveness according to the GMS requirements. Therefore, it is established that these types of technology have already been tested in the context of the GMS requirements,

– Passive technology: this type of technology has been used in other industries in large scales. However, a test will be required to attest that this technology meets the GMS requirements. A number of DPOs from the Gulf region have decided to initiate a test using RFID passive technology and semi-passive technology to assess whether they can meet the GMS requirements. It is

16

planned that the test will be validated by an external organization that provides accreditation in the RFID testing area.

17

Report on test results:

– Taking advantage of this initiative from the Gulf region it will be possible to use the accredited results to establish solid conclusions on the potential use of the passive technology in the context of the GMS.

– Standards for interoperability:

At this stage it will be necessary to identify standards that ensure interoperability to fulfil the objective referred to in paragraph 74.

The impending RFID test among the DPOs from the Gulf region will provide an opportunity to establish solid conclusions in the area of interoperability based on the expected accredited results.

In addition, the UPU Advanced Electronic Services User Group for the area of the RFID has established a framework to further develop and identify standards that can ensure RFID interoperability. The results of the work of this UPU Group will contribute significantly to the identification of RFID standards providing interoperability.

– Report on potential RFID standards for interoperability:

The accredited result on the test of the Gulf region DPOs and the results of the initiative undertaken by the UPU Advanced Electronic Services User Group will assist in determining potential solutions in matters of RFID interoperability.

A report will summarize the conclusions on the follow-up of such initiatives.

– Use of standards for RFID technology and for RFID interoperability in the GMS:

Subject to solid conclusions, potential standards will serve to integrate the specifications of the call for tender.

This measure envisages ensuring that GMS RFID potential service providers offer the adequate options that will safeguard the investment already made by DPOs in RFID infrastructures through interoperability while keeping the potential for selecting the most cost-effective RFID option for the GMS.

X. Financing

Q. New global system estimated costs

77 Diagnostic system related costs (see Table 1 for a cost estimate by country category):

i Diagnostic: equipment (one-off): not required for the countries already participating in the target (IC–IC) system and those already having installed equipment.

ii Panel management: panel set-up costs (one-off): recruiting and training panellists.

iii Measurement costs: contractor and overhead costs for seeding/recording of transponder items and data transfer costs.

iv IB management costs: IB Quality of Service unit.

v Auditing costs: annual external audit of GMS.

R. Diagnostic system related costs

RFID equipment costs

78 The GMS proposes the RFID standard equipment for countries in levels A to C and the RFID single unit concept equipment for countries in levels D and E.

18

Table 1

Country classification Level A Level B Level C Level D Level EEUR EUR EUR EUR EUR

Annual valid test items 10,000 3,800 2,100 900 300

One-off costs

RFID standard equipment(1 reader site with 4 gates)

12,000 12,000 12,000 x x

RFID single unit equipment(1 reader site with 1 gate)

x x x 7,000 7,000

RFID transponders(20 USD/piece)

30,000 12,000 6,000 2,500 900

Travel and labour time for site survey and RFID installation

16,000 16,000 16,000 x x

Set-up costs for measurement

0–50,000 0–30,000 0–15,000 0–5,000 0–3,000

Total one-off costs (rounded)

80,000 55,000 41,500 12,000 9,500

Running costs

Measurement(7 EUR per item)

70,000 26,500 15,000 6,500 2,000

Data transfer 2,500 2,500 2,500 1,000 1,000

System management(+15%)

10,500 4,000 2,500 1,000 300

Total running costs (per year)

83,000 33,000 20,000 8,500 3,300

RFID standard equipment

79 One-off set-up estimated costs for RFID standard equipment (one reader site with four gates). Includes:

– hardware installation costs;

– RFID transponders: 20 USD per item;

– travel and labour: site survey and RFID installation;

– set-up costs for measurement: panellist recruitment.

80 Annual estimated running costs for RFID standard equipment:

– measurement: 7 EUR per item;

– data transfer;

– system management (15%).

81 All the above prices are estimates and are subject to change due to multiple factors. A 10% overage necessary to ensure an adequate valid mail rate is not included. None of the above prices include postage or shipping costs (for mailing transponders).

RFID single unit concept

82 As described in the UPU GMS technical design, the process of installation considered for the RFID single unit concept is considerably simpler and less costly than that for the RFID standard equipment.

83 One-off set-up estimated costs for one RFID light equipment of one reader site:

– hardware installation costs: in principle it is assumed that countries in levels D and E would need only one RFID single unit concept reader;

19

– RFID transponders: 20 USD per item;

– set-up costs for measurement: panellist recruitment.

84 Estimated annual running costs for RFID standard equipment:

– measurement: 7 EUR per item;

– data transfer;

– system management (15%).

85 All of the above prices are estimates and are subject to change due to multiple factors. A 10% overage necessary to ensure an adequate valid mail rate is not included. None of the above prices include postage or shipping costs (for mailing transponders).

Table 2 – Total estimate for the entire system

GMS estimated equipment and running costs (in EUR)

Level No. of countrie

s

One-off costs Annual running costs

Year 1 total Total year 1 per category

A 15 80,000 83,000 163,000 2,445,000

B 40 55,000 33,000 88,000 3,520,000

C 25 41,500 20,000 61,500 1,537,500

D 35 12,000 8,500 20,500 717,500

E 75 9,500 3,300 12,800 960,000

190 9,180,000

Without initial equipment/tp costs for 50 countries already with diagnostic

8,022,000

IB Quality of Service Unit: Estimated cost = To be determined

Annual External Audit:Estimated cost = To be determined (EMS Cooperative spends approximately 100,000 EUR annually for external audit)

S. Financing sources

86 Three existing sources of revenue are available to fund the additional costs of the GMS incurred by both the International Bureau and participating countries. These include:

i Quality of Service Fund (QSF);

ii UPU Quality of Service reprogramming of funds;

iii Participation/target achievement bonus.

20

87 A summary of each source is provided below:

1 Quality of Service Fund (QSF)

Table 3

Estimated QSF accumulated resources since 2001

0.7 0.64

Amount(USD)

Average per administration*

(USD)

Number of administrations

Total(USD)

EUR SDR

0 to 10,000 5,000 24 120,000 84,000 76,800

to 50,000 30,000 41 1,230,000 861,000 787,200

to 100,000 75,000 30 2,250,000 1,575,000 1,440,000

to 150,000 125,000 18 2,250,000 1,575,000 1,440,000

to 500,000 325,000 29 9,425,000 6,597,500 6,032,000

to 750,000 625,000 13 8,125,000 5,687,500 5,200,000

to 1 million 875,000 8 7,000,000 4,900,000 4,480,000

to 1.5 million 1,250,000 6 7,500,000 5,250,000 4,800,000

to 2 million 1,750,000 3 5,250,000 3,675,000 3,360,000

over 2 million 2,000,000 4 8,000,000 5,600,000 5,120,000

Totals 176 51,150,000 35,805,000 32,736,000

Total with > 10,000 USD accumulated = 152

* Note. – estimate based on mid-point per category – individual country data are confidential.

88 Although a number of countries have already spent the majority of their QSF allocation on quality improvement projects, utilization of these funds from 2008 through 2012 and beyond should provide a significant portion of the funding for even the smallest flow countries. A review of QSF resources reveals that many countries have the ability to fund all or most of the approximately 13,000 EUR to 20,500 EUR estimated costs for the required purchase of the RFID single unit concept system and first year annual running costs.

Table 4

Estimated QSF receipts – 2006

0.7 0.64

Amount(USD)

Average per administration*

(USD)

Number of administrations

Total(USD)

EUR SDR

0 to 10,000 5,000 59 295,000 206,500 188,800

to 50,000 30,000 61 1,830,000 1,281,000 1,171,200

to 100,000 75,000 26 1,950,000 1,365,000 1,248,000

to 150,000 125,000 8 1,000,000 700,000 640,000

to 500,000 325,000 17 5,525,000 3,867,500 3,536,000

over 500,000 500,000 5 2,500,000 1,750,000 1,600,000

Totals 176 13,100,000 9,170,000 8,384,000

Total with > 10,000 USD QSF income annually = 117

* Note. – estimated based on mid-point per category – individual country data are confidential.

21

89 Current QSF rules allow funds to be used only for the purchase of diagnostic equipment and for the initial running costs for the first year. It is recommended that a proposal be made to the QSF Board to change the QSF regulations to first prioritize projects and secondly to allow the Fund to be used for annual GMS running costs beyond the first year. While the QSF's existence is not guaranteed beyond 2008, funding of the GMS is one of the most convincing reasons for extending the life of the Fund through the Nairobi cycle. Under this proposal, the two types of project would be required before the funds could be used for other projects.

90 Currently, there are seven fields that the Quality of Service Fund is dedicated to improving. The QSF Deed of Trust lists:

– access to service;

– speed and reliability;

– security;

– liability and the treatment of inquiries;

– customer satisfaction;

– design and implementation of costing and pricing systems;

– quality development plans.

91 Under this proposal, IPS/IPS Light and GMS, which both directly relate to "Speed and Reliability" referenced above, would be required before any other projects would be considered:

a International Postal System (IPS/IPS Light): 110 countries have already installed IPS, IPS Light or have equivalent capabilities.

b RFID diagnostic equipment, set-up and running costs (first year and beyond): 49 countries have already installed RFID diagnostic equipment in their offices of exchange. Those countries already with diagnostic capabilities are the logical first phase of participants in the GMS. Use of QSF for diagnostic equipment and running costs would be required if not already installed.

c Other Programmes: concerning quality-related fields listed above.

2 UPU quality of service reprogramming of funds

92 The current budget environment does not provide for large increases in the UPU's Quality of Service Programme. Some of the resources could be shifted to support EMS overhead costs. These include a phasing out of the sequential testing programme (35,300 CHF in 2005 (21,000 EUR)] and a scaling back of consultancy missions.

93 Reconsideration of the UPU's continuous testing budget should also be conducted, particularly if any new GMS system would include an end-to-end/outbound testing option. A reprogramming of these funds could support the additional overhead costs incurred by the expanded UPU International Bureau.

3 Participation incentive and performance bonus

94 The setting of any future participation incentive, performance bonus or penalty will be recommended by the Terminal Dues Project Group. Based on the results of the April terminal dues workshop, the majority of countries wanted to keep the Quality of Service Fund and quality of service link distinctly separate.

95 In the future, any quality link structure would likely be similar to the current IC system of 2.5% plus 2.5%. Table 4 above provides an overview of the estimated amounts raised through the QSF plus the additional amount that countries would receive with a 2.5% incentive and a 2.5% performance bonus based on their total annual inbound volume based on the current classification system. Table 5 below indicates that even the smallest flow country, with 10

22

tonnes annually, still receives a significant amount to offset equipment, panel set-up, running costs and any additional overhead to pay for system support.

96 A country is free to use its participation incentive as it chooses, but the focus should be placed on diagnostic equipment and running costs. Table 5:

UPU global monitoring system funding scenarios

2.5% 2.5% 1.56 1.09

Annual

inbound

tonnes

TDs

(SDR)

QSF

%

QSF

amount

(SDR)

QoS

incentiv

e

(SDR)

QoS

bonus

(SDR)

Total %

above

TDS

Total

(SDR)

USD EUR

NCCs

10 37,270 1 373 932 932 6 2,236 3,488 2,437

25 93,175 1 932 2,329 2,329 6 5,591 8,721 6,094

50 186,350 1 1,864 4,659 4,659 6 11,181 17,442 12,187

100 372,700 1 3,727 9,318 9,318 6 22,362 34,885 24,375

175 652,225 1 6,522 16,306 16,306 6 39,134 61,048 42,656

250 931,750 1 9,318 23,294 23,294 6 55,905 87,212 60,936

Track

10 37,270 8 2,982 932 932 13 4,845 7,558 5,281

25 93,175 8 7,454 2,329 2,329 13 12,113 18,896 13,203

50 186,350 8 14,908 4,659 4,659 13 24,226 37,792 26,406

100 372,700 8 29,816 9,318 9,318 13 48,451 75,584 52,812

175 652,225 8 52,178 16,306 16,306 13 84,789 132,271 92,420

250 931,750 8 74,540 23,294 23,294 13 121,128 188,959 132,029

LDCs

10 37,270 16.5 6,150 932 932 21.5 8,013 12,500 8,734

25 93,175 16.5 15,374 2,329 2,329 21.5 20,033 31,251 21,836

50 186,350 16.5 30,748 4,659 4,659 21.5 40,065 62,502 43,671

T. Conclusion

97 The Terminal Dues Project Group and POC must decide on some kind of incentive and penalty system. This paper recommends working with the QSF Board of Trustees and POC with a view establishing the use of the QSF for funding the IPS and GMS projects as a core priority, as well as ensuring the use of the Fund for running costs beyond the first year of participation.

Financing milestones

– TD PG/QSF Board approval/QSF Ad-Hoc Group Review October 2007

– POC approval January 2008

Nairobi Congress approval – QSF renewal August 2008

Implementation of QSF funding for GMS projects (Pilot) September 2008

XI. GMS project framework between POCs

98 From the April 2007 POC until January 2008 POC the QS PG SC and the GMS DG could achieve the following objectives relating to the GMS project:

23

a Organization of the project.

b Development of the methodologies by project area required to implement the GMS.

c Finalization of the GMS technical design subject to revision in accordance with the result of the planned pilot.

99 The preparation of the work mentioned above will permit, subject to the decision taken by 2008 POC, specific actions to be undertaken with a view to starting the GMS pilot by 2009 subject to the decision taken by POC following Congress. The document POC QS PG 2008–Doc 8.Annex 1.Pièce 1 provides information relating the expected progress of the project between POCs.

100 The following actions are required from the 2008 POC until the POC after the Nairobi Congress:

– progress with development of technical standards for the GMS;

– invite UPU members to participate in the GMS pilot;

– set-up structure for pilot;

– organize pilot;

– initiate pilot implementation;

– work with relevant stakeholders to ensure the financing arrangements for pilot;

– prepare technical specification for procurement by the Nairobi Congress;

– prepare all documents for the call for tenders;

– it is planned that the selection of contractors will be conducted after the POC following the Nairobi Congress;

– propose the governance structure for the GMS;

– prepare a final implementation plan, including the transition of the current IC–IC system to the GMS;

– submit activity report to the POC following Congress.

101 Please refer to the proposal to create a GMS Interim Project Group to get additional information on the structuring of the work between POCs.

XII. Decisions expected

102 The POC is invited to:

– Approve the GMS project report.

– Approve the GMS technical design, in accordance with Annex 2, noting that technical conclusions resulting from the pilot might lead to a revision of elements of the design.

– Approve the proposed methodologies and models to progress the GMS project in respect to the various project areas.