U.S. Postal Service: The Service's Strategy for Realigning Its Mail Processing Infrastructure Lacks Clarity, Criteria, and Accountability
Published: 2005-04-08T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: With declining mail volumes, increasing compensation costs, and a more competitive marketplace, the need for the U.S. Postal Service (Service) to increase efficiency and reduce expenses is a matter of increasing importance and concern. According to the Service, one area where it can become more efficient is in its mail processing and distribution infrastructure. The objectives of this report are to (1) describe major business and demographic changes and their effect on the Service's mail processing and distribution infrastructure; (2) describe what actions the Service is taking in response to these changes, and what challenges exist; and (3) discuss the Service's strategy for realigning its infrastructure.
section_title: What GAO Found
paragraphs: Several major changes have affected mail processing and distribution operations including marketplace changes, such as declines in First-Class Mail and increased competition; increased automation and mail processing by mailers; and shifts in population demographics. Effects of these changes include excess capacity in the mail processing and distribution infrastructure and variations in productivity among plants. The Service is exploring ways to realign its infrastructure by closing annexes, consolidating operations, and employing tools to model its infrastructure needs, while at the same time attempting to increase efficiencies in its current operations by expanding automation, improving material handling operations, creating a comprehensive transportation network, and introducing standardization programs. Also, there is a large range in productivity among plants. Reducing this range is difficult due to the complexity of operations and differences in plant layout. In addition, the Service faces challenges in eliminating excess capacity, while maintaining service standards, due to workforce rules and resistance to plant closings. Questions remain about how the Service intends to realign its processing and distribution infrastructure and workforce. The Service's strategy for realigning has not been clear because the Service has outlined several seemingly different strategies over the past 3 years. None of these strategies include criteria and processes for eliminating excess capacity, which may prolong inefficiencies. Also, the strategy lacks sufficient transparency and accountability, excludes stakeholder input, and lacks performance measures for results.

section_title: Letter
paragraphs: The United States Postal Service (Service) has developed a highly complex  infrastructure that includes about 450 plants that process and distribute an  average of 660 million pieces of mail per day. To meet its universal service  obligation, which requires it to provide mail delivery services to all people  residing in the United States, the Service delivered mail to over 142 million  addresses in fiscal year 2004. This represented an increase in addresses  over fiscal year 2003 of 1.8 million. Mail processing costs amount to about  $20 billion annually, while annual transportation costs are about $5 billion.  The Service is subject to a mandate to break even that requires that postal  rates and fees shall provide sufficient revenues so that the Service’s total  estimated income and appropriations will equal as nearly as practicable its  total estimated costs. For the first time in its history, the Service  experienced declining First-Class Mail volumes for 3 years in a row. This  trend is expected to continue and raises specific concerns, since  traditionally First-Class Mail provided high revenue-per-piece, which helps  cover the Service’s institutional expenses. Another challenge is that  compensation costs, which account for over 79 percent of the Service’s  total costs, grew 3 percent from fiscal year 2003 to 2004 while the number  of full-time employees decreased. This increase in compensation costs is  due in part to healthcare benefits that increased 7 percent over the same  period. With major changes that affect its mail processing operations,  including declining mail volumes, increasing compensation costs, and a  more competitive marketplace, the need for the Service to increase  efficiency and reduce expenses has become more urgent.
In April 2002, in response to a GAO recommendation, the Service issued a  Transformation Plan that outlined the steps it planned to take to address  the challenges it faced. One key goal cited in the Transformation Plan was  for the Service to become more efficient by standardizing operations and  reducing excess capacity in its mail processing and distribution  infrastructure. Mailer interest groups and a report by the Presidential  Commission on the Postal Service also supported the goal of “rightsizing”  the nation’s postal infrastructure; that is, establishing a least-cost network  for the Postal Service and the entire mailing industry while improving  overall efficiency and service.
To assist Congress in monitoring the Service’s progress in implementing the  realignment of its mail processing and distribution infrastructure, this  report addresses three key objectives. First, it describes major business  and demographic changes and the effect of these changes on the Service’s  mail processing and distribution infrastructure. Second, it describes the  actions the Service is taking to achieve a more efficient and flexible  network in response to these changes, and the challenges associated with  implementing these actions. Finally, it discusses the Service’s strategy for  realigning its infrastructure.
To address these objectives, we interviewed mailing industry associations,  postal officials at Service headquarters, and employee union  representatives about their views of the major changes affecting mail  processing and distribution operations and infrastructure, as well as the  Service’s plans, strategy, and progress to realign its infrastructure. We also  visited several Service mail processing plants to observe operations and  interviewed plant managers in the Pacific, Southeastern, Eastern, and  Capital Metro areas about their efforts to improve efficiency. We analyzed  Service productivity data and documentation related to its productivity and  efficiency improvement efforts, including plans and implementation  schedules. We also reviewed Service documents related to its  infrastructure realignment and discussed the direction and progress of its  realignment efforts with the Service’s Chief Operating Officer, the area vice  presidents, and other senior management officials involved in this effort.  We assessed the reliability of the Service’s data used in our assessment of  productivity and efficiency and found it reasonable for our purposes. We  conducted our review at Service headquarters and field locations between  April 2004 and January 2005 in accordance with generally accepted  government auditing standards. A more detailed discussion of our  objectives, scope, and methodology is included in appendix I. We requested  comments on a draft of this report from the Service and its comments are  discussed later in this report and reproduced in appendix IV.
subsections: section_title: Background
paragraphs: The Service’s mail processing and distribution infrastructure, whereby mail  is prepared for sorting on automation equipment by applying a barcode,  sorted through various processing equipment, and transported between  plants, consists of interdependent networks where operations in one part  affect operations throughout. For example, if mail processing is delayed in  one plant and misses the cut-off time for being loaded onto trucks for  distribution, transportation will not be fully used because the trucks will  leave without that mail. Subsequent processing will also be affected at  plants that will receive this mail. In addition, the Service’s infrastructure is  part of a larger economic sector commonly referred to as the mailing  industry. According to research conducted by the Mailing Industry Task  Force, the Service, and the Direct Marketing Association, the core mailing  industry is a $976 billion industry comprised of the Service, its competitors,  direct and indirect mailers, and mail intensive business segments such as  mail order, publishing, and printing houses. This industry accounts for 9  million domestic jobs in all 50 states and the District of Columbia. Mailers  generally use one of the four major classes of mail:   First-Class Mail consists mainly of bills, bill payments, correspondence,  and advertising and also includes the expedited product, Priority Mail;   Periodicals Mail encompasses mainly magazines and local newspapers;   Standard Mail is primarily bulk advertising and direct mail solicitations;   Package Services Mail includes parcels, merchandise, catalogs, media,  and books.
Tables 1 and 2 describe the major types of businesses that make up the  mailing industry and how they generally interact with the Postal Service.
The Service processes mail through its nationwide infrastructure according  to shape and class of mail. There are three basic mail shapes (1) letters,  which are small rectangular pieces no thicker than 1/4 inch; (2) flats, which  are rectangular pieces no thicker than 3/4 inch; and (3) parcels, which are  three-dimensional pieces weighing up to 70 pounds.
The Service established national service standards over 30 years ago that  direct how many days it should take mail to reach its destination,  depending on its origin and mail class. For example, First-Class Mail has  service standards of overnight, 2 and 3 days depending on the distance it  has to travel. In addition, the Service developed class-specific processing  networks to process specific types of mail including:   a Processing and Distribution Center (P&DC) network that primarily  processes First-Class Mail, Periodicals, and some parcels, as well as  some Standard Mail;   a Priority Mail Processing Center (PMPC) network that processes   a Bulk Mail Center (BMC) network that processes bulk Standard Mail  and parcels.
Each of these networks uses separate processing and distribution plants as  described in table 3.
First-Class Mail is collected from mailboxes, houses, or post offices and  transported to a P&DC or deposited directly at the P&DC by the mailer.  Depending on where the mail originates from (origination) and where it is  being delivered to (destination), this mail can be processed in multiple  plants. It may be transported (1) directly between P&DCs, (2) through a  hub and spoke plant, (3) through an air mail center, or (4) through a  combination of these. Once the mail has reached the destination P&DC, the  mail is transported to a delivery unit for carrier delivery. For example, a  birthday card mailed from Washington, D.C., to Sacramento, CA, would be  mailed as First-Class Mail and might follow these steps:  1. picked up from mailbox by carrier and brought to local post office;  2. transported to Suburban Maryland P&DC where the postage stamp is  cancelled and a barcode reflecting the proper destination is applied to  the mailpiece so it can be sorted according to destination;  3. 4. flown to San Francisco, CA;  5. transported to San Francisco Air Mail Center where it is sorted to the  proper destination plant; 6. transported to West Sacramento P&DC where it is sorted into delivery  order; and 7. transported to local post office to be picked up by carrier and delivered  to addressee.
Priority Mail can either be processed in the Priority Mail network or in the  P&DC network similar to First-Class Mail. For example, legal documents  sent Priority Mail from Rochester, NY, to Sacramento, CA, might follow  these steps: 1. transported from local post office to Rochester Priority Mail Processing  Center where it is separated from local Priority Mail and sorted  according to destination; 2. transported to Rochester Air Mail Center where it is assigned to a  specific flight; 3. flown to San Francisco, CA;  4. transported to San Francisco Air Mail Center where it is sorted to  proper destination plant; and 5. transported to West Sacramento P&DC where it is sorted into delivery  order; and 6. transported to local post office to be picked up by carrier and delivered  to addressee.
Discount mailings (Standard Mail, bulk parcels, etc.) can enter the bulk  mail network by being weighed and paid for at the mailer’s plant through a  detached mail unit, or at a postal plant through a Business Mail Entry Unit.  A mailing is initially processed at the bulk mail center where it was entered,  and then pieces are transported to the bulk mail center in the area where it  will be delivered. To receive additional discounts or achieve faster delivery  time, the mailer can enter mail closer to its destination. This is called  dropshipping. For example, a Standard Mail advertisement dropshipped  from Washington, D.C., to Sacramento, CA, might follow this path:  1. accepted into mailstream through detached mail unit at a mailer’s plant  in Washington, D.C.; 2. transported by mailer to the West Sacramento P&DC and sorted into  delivery order; and  3. transported to local post office to be picked up by carrier and delivered  to addressee.
Figure 1 depicts how mail flows through these networks, while figure 2  maps the location of the Service’s processing and distribution plants.
section_title: Major Changes Have Impacted the Service’s Mail Processing and Distribution Infrastructure
paragraphs: Since the U.S. Post Office Department was reorganized into the U.S. Postal  Service by the Postal Reorganization Act of 1970, there have been several  major changes, the effects of which include excess capacity in the mail  processing and distribution infrastructure, as well as productivity  differences among plants. These changes include:   changes in the marketplace and the role of industry that have resulted in  declines in mail volume and changes in mail mix;   the evolution of the Service’s processing and distribution infrastructure,  and the advent of processing automation, that has led to an  infrastructure consisting of processing and distribution plants that differ  markedly from one another; and  changes in demographics and modes of transportation that affect the  optimal location of the Service’s plants.
subsections: section_title: Changing Marketplace Has Led to Changes in Mail Volume and Mail Mix
paragraphs: Changes in the marketplace, including the substitution of electronic  communication for First-Class Mail, shifts in how customers use the mail,  increased competition in overnight mail and package services, and the  changing role of mailers, have led to changes in mail volume and mix.  These changes have intensified the Service’s future financial challenges.  Historically, the Service’s business model depended on revenues from  increasing mail volumes to cover its expanding infrastructure. This model  has proven more difficult to sustain because of the decreasing mail  volumes, particularly in First-Class Mail. As the Service’s Chief Financial  Officer stated, “this shift in mail mix to lower revenue-per-piece mail  classes will result in shrinking margins, which are used to maintain  universal service.”
subsections: section_title: Electronic Diversion Has Led to Decreases in First-Class Mail Volume
paragraphs: First-Class Mail volume, the class that contributes the majority of revenue  to institutional costs, declined 5 percent from fiscal year 2000 to 2004 and  this downward trend is expected to continue. The Service has attributed  the declining First-Class Mail volume to the impact of electronic diversion  as businesses, nonprofit organizations, governments, and households  increasingly automate their financial transactions and divert  correspondence to the Internet. For example, electronic bill payment  allows users to pay bills using the Internet rather than sending checks  through the mail. In 2003, the majority of noncash payments were made  electronically; just 3 years earlier the majority had been made by check.  Recent Federal Reserve studies found that the number of checks paid in  the United States has continued to decline since it peaked in the mid-1990s.  There were nearly 50 billion checks paid in 1995. By 2000, that number had  declined to 41.9 billion and by 2003 that number had dropped to 36.7  billion. Between 2000 and 2003, electronic payments increased from 30.6  billion to 44.5 billion, an increase of over 45 percent. Further, recent  legislation that became effective October 28, 2004, is intended to improve  the efficiency of check processing and may reduce reliance on the physical  movement of checks through the mail. It is likely that this change will  accelerate the decline in First-Class Mail volume.
section_title: Shift in Mail Usage Has Led to Challenges in Revenue Generation
paragraphs: As a result of declining First-Class Mail volumes and the lower revenue per  piece provided by Standard advertising mail volumes, the Service will be  challenged to generate sufficient revenue to cover institutional costs. From  1970 to 2000, First-Class Mail accounted for the majority of mail volume.  However, as seen in figure 3, Standard Mail volume is on the verge of  overtaking First-Class Mail volume. According to postal officials, Standard  Mail volume is projected to be greater than First-Class Mail volume by  fiscal year 2005.
In fiscal year 2003, combined First-Class Mail and Standard Mail accounted  for almost 94 percent of the Service’s total mail volume. It takes  approximately 2.5 pieces of Standard Mail to make up for the lost  contribution from 1 piece of First-Class Mail. During fiscal year 2003, First- Class Mail declined by 3.3 billion pieces, resulting in a loss in revenue to be  contributed toward institutional costs (contribution) of $675 million, while  Standard Mail increased by 3.1 billion pieces for a gain in contribution of  $256 million. The net loss in contribution from these two classes in fiscal  year 2003 was $419 million.
section_title: Increased Competition in Packages and Overnight Mail Have Hurt Mail Volume
paragraphs: Competition in the overnight and package business is increasing. In 1971,  the Service and United Parcel Service each had roughly a 50 percent share  of the national parcel market. FedEx entered the parcel ground delivery  market with the acquisition of Caliber in 1998 and, by 2001, the Service’s  share of the parcel ground market had slipped to less than 10 percent. In  addition, the Service’s market share of overnight and 2 and 3 day air  package services decreased between fiscal years 2000 and 2003. As seen in  figure 4, volume for the Service’s products in this category, Priority Mail  and Express Mail has declined precipitously in recent years.
Over the past 30 years, the role of mailers has changed, leading to further  shifts in the mail mix. This change is due in large part to the advent of the  Service’s worksharing discounts. Postal worksharing activities generally  involve mailers preparing, barcoding, sorting, or transporting mail to  qualify for reduced postage rates. Key worksharing activities include (1)  barcoding and preparing mail so the Service can sort it on automated  equipment; (2) presorting mail, such as by ZIP Code or specific delivery  location; and (3) entering mail closer to destination, commonly referred to  as dropshipping. The first of many presort and automation worksharing  discounts was introduced in 1976, followed by dropship discounts for  periodicals in 1985, and Standard Mail in 1991. Presorting and barcoding by  mailers allows the Service to avoid primary sorting activities, while  dropshipping allows it to avoid transporting mail as well. For example,  prior to dropshipping, mail entered the infrastructure at the point of origin.  Dropshipping allows the mailer a discount for bypassing the origination  plant and transporting the mail closer to its destination point.
Presort discounts spawned the mail consolidation business, whereby  consolidators gather mail from many different mailers, sort it, and convey it  to the Service for final delivery. The dropship discounts were the catalyst  for major growth within the consolidation business. As seen in figure 5,  virtually all of the growth in volume since 1972 is in workshared mail.  Worksharing contributes to excess capacity because mail volume bypasses  operations that occur early in the processing and, in some cases, as with  dropshipping, mail volumes bypass entire plants.
section_title: Evolution of the Service’s Processing and Distribution Infrastructure Has Resulted in Markedly Different Plants
paragraphs: The Service’s mail processing and distribution infrastructure has developed  over time resulting in an infrastructure comprised of plants that are  markedly different from one another. This evolution has resulted in some  plants’ inability to accommodate processing equipment because the floor  space requirements differ for manual and automated processing; and the  plants were not originally designed to house the advanced technology.  Also, some plants exclusively process certain types of mail, which has  driven up the cost per piece for those types of mail. Today, the Service’s  mail processing and distribution infrastructure includes plants that range in  age from 2 to 72 years old, range in square footage from 455 square feet to  1,538,494 square feet, have different layouts, serve different processing  functions, and do not share the same amount and type of processing  equipment.
subsections: section_title: Plants Have Had to Accommodate Equipment in Buildings That Were Not Designed to House the Technology
paragraphs: Originally, the Service developed mail processing and distribution plants to  manually sort mail using pigeonhole cases. The Service took major steps  toward mechanizing plants in the mid-1950s with the introduction of the  letter sorting machine. The letter sorting machine required an operator to  read the address on an envelope and key the information into a console. A  conveyor belt system then directed the piece to the appropriate receptacle  for the address. In the early 1980s, the Service began replacing the  mechanized letter sorters with automated systems that used optical  character readers rather than manual keying of addresses. The concept of  mechanized sorting was expanded to include flats in the 1980s. The Service  recently deployed automated flat sorters and has begun deploying  automated parcel sorting equipment. Figure 6 depicts the evolution of mail  processing operations.
The floor space required to accommodate automation equipment is  different than that needed to accommodate manual or mechanized sorting  equipment, and not all plants have room for new equipment that could  increase efficiency. As seen in figure 7, many of the Service’s plants were  built prior to the advent of automation. Therefore, some plants may not  have enough floor space to accommodate the newer equipment.
Some plants are part of dedicated networks that exclusively process  certain types of mail and have resulted in higher costs. The Service  developed dedicated mail processing networks within its infrastructure to  process certain classes of mail, including a bulk mail network and a  Priority Mail network. In general, by law, each postal product must cover  the costs attributable to provision of that product plus a reasonable amount  of institutional costs. Consequently, when a network is dedicated to only  one type of mail, that type of mail must bear the costs of the dedicated  network. In addition, with a dedicated network, transportation capacity  utilization is limited to the amount of mail that is traveling through the  dedicated network and redundancies can occur. For example, Priority and  Standard Mail may be traveling through the same area and may even use  the same roads; however, because they are processed in separate  networks, they do not travel on the same truck. Therefore, two trucks that  are 50 percent full might make the trip rather than one truck that is 100  percent full.
In the 1970s, the Service developed a bulk mail network to maintain its  share of the parcel market against United Parcel Service, and built 21  plants to process and distribute parcels. These plants also process sacks of  bulk Standard Mail. As operations have evolved over 30 years, the BMCs  have encountered a number of difficulties in trying to process the mail  efficiently. Furthermore, bulk Standard Mail is increasingly bypassing the  BMC network through dropshipping.
Bulk letter mail, which first enters the bulk mail network in sacks or trays,  can be processed more efficiently through automated letter sorters when it  reaches the processing and distribution plants if it is presented in trays  rather than sacks. Consequently, the Service made a concerted effort to  move mail out of sacks and into trays. However, this move caused  problems for the BMCs, which used sack-sorting machines. During our  visits to postal plants, managers told us that sack-sorting machines were  not designed to process rectangular trays. Sorting trays on the sack sorters  often resulted in trays, which carry an average of 500 pieces of mail,  breaking open and spilling mail over the conveyor belt. Consequently, the  sack sorter had to be turned off while the individual mail pieces were  collected and either sent to a P&DC for processing or processed on  equipment that had been brought into the BMC specifically to deal with this  problem. The BMCs were told by headquarters to remove all trays from  automated equipment beginning in October 2004, and some BMCs are now  processing the trays manually, which results in an increase in workhours.
In addition, changes in the way trucks are loaded and unloaded have  affected dock space at the BMCs. For example, when trucks were loaded at  processing plants by manually stacking packages inside the truck  (bedloaded), it took 8 hours to unload a truck filled to capacity. Today, the  Service uses automated loading machines that fill containers with  packages, which are then loaded by forklift into the trucks. Trucks are  unloaded by forklift, and automated equipment dumps the containers  directly onto the conveyor belts that lead to the sorting equipment. Using  this procedure it only takes 30 minutes to unload the same amount of mail.  Figure 8 depicts the difference between bedloaded and container-stacked  truckloads. While this has been a great improvement in workhour savings,  BMCs now have problems storing all the mail because of limited dock  space. We also observed and were told that some of the equipment in the  BMCs is so old that it cannot run at full capacity and in some cases was not  being used. For example, in one BMC the tow-line—used for transporting  mail throughout the building—was shut down 18 years ago because it  needed constant repairs. Consequently, mail is moved between operations  either manually or using forklifts and tow trucks.
The Service also has a dedicated network for its expedited product,  Priority Mail, which has driven up the cost of Priority Mail and led to  declines in volume. In 1997, the Service awarded a 5-year contract to Emery  to develop a PMPC network on the east coast to improve Priority Mail’s  service performance. The Service also contracted with Emery to provide a  dedicated transportation network for Priority Mail. Because the network  only processed Priority Mail, all of the costs were borne by Priority Mail  users. Large rate increases in 1999, 2001, and 2002 for Priority Mail, coupled  with service problems, contributed to a 31 percent decline in Priority Mail  volume from fiscal year 2000 to 2004. Table 4 shows rate increases and mail  volumes. Consequently, the Service cancelled its processing and  transportation contract with Emery in 2001, absorbed the processing back  into its infrastructure, and contracted with FedEx for transportation  services. While the Service is still processing Priority Mail in PMPCs, it is  moving Priority Mail operations into other processing plants. It has also  begun converting some PMPCs to Logistics and Distribution Centers  (L&DC), which process multiple types of mail, and according to Service  officials, it is the Service’s intent to eventually convert all PMPCs to L&DCs.
section_title: Postal Service Plants May Not Be Optimally Located Due to Changes in Demographics and Transportation
paragraphs: Due to population shifts, household growth, and the changing  transportation landscape in the United States, Service plants may not be  optimally located. The Service stated in September 2003 that, “population  shifts, changes in mail processing technology, and external events that  occurred during the last two years, have required dramatic shifts in  operating conditions resulting in rising costs to maintain the existing  network.”
Most Service processing plants are located in eastern states—states that  historically have had the highest populations. During the 1990s, U.S.  household growth trends began moving west and south, with Nevada and  Arizona ranking as the two fastest growing states in the nation. As seen in  figure 9, the majority of the Service’s processing plants are located in states  whose household growth is not as rapid as others. The Service has said that  the operational challenge it faces in 2004 and beyond is to locate  processing plants and employees within efficient reach of most of the  population, while at the same time providing universal service to the rest of  the nation at reasonable cost.
Additionally, Service processing plants built in the first half of the 20th  century were built near major railroad stations. In 1930, the bulk of  domestic mail was moved by rail on over 10,000 trains nationwide. In 1965,  only 190 passenger trains carried mail, and by 1970, virtually no First-Class  Mail was carried by rail. In September 2004, Amtrak announced that it  would discontinue transporting mail for the Service. Changes have also  taken place in the Service’s use of air transportation. As a result of the  September 11, 2001, attacks, new federal aviation security restrictions  prohibited the transportation of mail weighing more than 16 ounces on  commercial flights. As a result, the majority of the mail previously  transported by commercial air has shifted to surface transportation or is  flown by FedEx. Ongoing shifts in transportation have created an  environment where most mail is now moved by highway and air, and some  processing plants would be better located so that major highways and  airports are easily accessible.
section_title: Changes Have Contributed to Variations in Productivity Among Processing Plants and Excess Capacity
paragraphs: The changing marketplace, evolution of mail processing, and shifts in  demographics have contributed to variations in productivity across plants  and excess capacity. The growth in infrastructure over time has resulted in  differences in processing plants and contributed to variations in  productivity and cost among plants. The decline in mail volume and the  evolution of mail processing have contributed to excess capacity.
Productivity Varies among Plants Average productivity—total pieces processed per hour—varies among the  Service’s mail processing and distribution plants, which indicates that  some plants are not processing mail as efficiently as others. Service  officials have attributed this variation to several factors, including size of  plant as measured by workload, number of employees, layout of plants, and  the use of nonstandardized processes. An analysis of productivity data for  processing and distribution plants for fiscal year 2004 indicates that none  of these factors, in isolation, can explain the variations; rather, as seen in  table 5, it seems that plants with low productivity exhibit a number of  contributing factors. For example, according to a Western Area Postal  Service official, the processing plant in Spokane, WA, is one of the most  productive plants because the plant is new, all operations are performed on  one floor, and it has an automated system to transport mail among the  different operations. The processing plant in Des Moines, IA, on the other  hand, has very low productivity. This plant is 50 years old, has multiple  floors where processing occurs, does not have enough dock space, and  does not have adequate floor space for new processing equipment.
According to Service managers, a plant’s annual workload impacts its  productivity. The Service classifies its plants based on the number of  workhours that should be required to process the plant’s annual workload  (earned hours). The classifications are small—295,000 or less earned  workhours, medium—between 295,001 and 680,000 earned workhours, and  large—more than 680,000 earned workhours. According to the managers,  small plants are more efficient then larger plants because operations at  small plants are not as complex as operations at larger plants and large  plants often have additional responsibilities. For example, one plant  manager told us that the plant he had previously managed had a large  contingency of mail carriers that operated out of it in addition to the plant’s  processing duties, which lead to space constraints. Larger plants often  consolidate and sort mail from smaller plants, which makes sorting  schemes more complicated and requires additional workhours to  accommodate the increased complexity. However, as seen in figure 10,  there are also large gaps in productivity among the plants within each size  classification. Therefore, it appears size, as measured by workload, is only  one contributing factor to the variation in productivity among plants.
Service officials also told us that the size of the workforce employed at a  plant impacts the plant’s productivity. According to these officials, plants  with large numbers of employees have lower productivity than plants with  fewer employees because with fewer employees, management has better  visibility and therefore better control over its operations. Plants with fewer  employees also have fewer layers of management and more direct manager  to employee contact. One manager, who had managed both large and small  plants, told us that productivity increases can be attributed to making sure  employees are doing what they are suppose to be doing and that this is  easier to manage with a smaller number of employees. Table 6 shows the  average productivity for plants broken down by number of employees.
Another factor, according to Service officials, is the physical layout of  plants, particularly when plants are multistoried, because more time is  spent moving mail between floors and among operations. For example, one  multi-story plant that we visited has a number of difficulties in processing  mail. Currently, the plant receives mail on the first floor, transports the mail  to the third floor where it is cancelled, then sends the mail to the second  floor for processing, and then back to the first floor for outgoing trucks.  Due to cost constraints, the plant does not have an automated system to  transport mail among the different floors and all mail must be moved  among the floors by elevator. Unfortunately, many of the elevators are  continually out of service. According to the manager at the plant, there are  13 elevators in the building and on a good day, 8 elevators are working.  Consequently, according to the manager, more workhours are used to move  mail around and prepare it for operations then would be used in a single- floor plant. This lowers productivity and increases the plant’s processing  costs. Figure 11 depicts the processing of a letter at a multistory plant  versus a single-floor plant.
The Service has 40 multistory processing plants across the country. The  average productivity at multistory plants in fiscal year 2004 was 1,381  pieces per hour, while in single floor plants it was 1,828 pieces per hour.  However, as seen in figure 12, there was a large gap between the  productivity at the most productive multistory plant and the productivity at  the least productive multistory plant in fiscal years 2001 through 2004.  While overall productivity improved for all plants between fiscal years 2001  and 2004, the gap in productivity also increased from 1,395 fewer pieces per  hour processed at the least productive plant than the most productive in  2001 to 1,524 fewer pieces in 2004.
Another factor in the productivity variation between plants is that the  Service does not have standardized processes across plants. Consequently,  one plant may be using a very efficient method to sort mail while another  plant may be using a less efficient method. For example, table 7 shows the  productivity of common automated mail processing operations varies by  area (the Service has divided its national network into nine geographic  areas).  evolution of mail processing operations from manual to automation  equipment have led to excess capacity. There are different types of excess  capacity including:  excess workhours, which occur when more workhours are used than  are necessary for processing the mail;   excess physical infrastructure, which occurs when more square footage  is available for processing mail than is necessary (this may include  entire plants);   excess transportation capacity, which occurs when trucks are run at  less than full capacity; and  excess machine hours, which occur when machines sit idle.
Declines in mail volume have led to excess equipment capacity because  less mail is being processed on the same amount of equipment. As stated  earlier, worksharing contributes to all types of excess capacity because  more mail volume is bypassing Service operations that occur early in the  process, such as cancellation and initial sorting. In the case of  dropshipping, volumes of mail bypass entire plants. With automation, mail  can be sorted faster than with manual processing. This has led to earlier  processing completion times and higher productivities. On average, 525  pieces of letter mail can be sorted in 1 hour using manual processing  operations, while 8,171 letters can be sorted in 1 hour using automated  processes. Consequently, mail no longer needs to be processed on all plant  shifts and equipment is being used fewer hours a day. Advancements in  technology have also lessened the need for certain types of plants, such as  air mail centers and remote encoding centers—which are separate plants  established to perform address barcoding on letters that could not be read  by the automated equipment in the mail processing plants.
section_title: The Service Is Pursuing Several Initiatives in Response to Changes but Challenges Remain
paragraphs: To achieve a more efficient and flexible infrastructure in response to  changes in the marketplace, the evolution of the mail processing  infrastructure, and shifts in demographics, the Service is exploring broad  infrastructure realignment, while at the same time pursuing several  initiatives to address inefficiencies in its current infrastructure. In its 2002  Transformation Plan, the Service outlined its network optimization effort,  the goal of which was to create a flexible logistics network that reduces  mailing industry costs, increases overall operational efficiency, and  improves service. The Service has also taken some concrete steps to  realign its infrastructure by closing some processing annexes, approving  construction on plants in certain locations, and consolidating operations in  various plants. In addition, the Service is pursuing several initiatives to  improve efficiency in its current infrastructure. It is expanding automation,  improving material handling operations, creating a comprehensive  transportation network, and introducing standardization programs in an  effort to reduce workhours and increase productivity. The Service faces  challenges in reducing variations in productivity across plants in part  because standardization efforts are hindered by the complexity in  operations and the physical differences in plants. The Service also faces  challenges in reducing excess capacity while maintaining service  standards, including workforce rules, and stakeholder resistance to plant  closings.
subsections: section_title: The Service Is Working Toward Realigning Its Infrastructure to Address Changes
paragraphs: To assess its overall infrastructure in relation to changes that have  occurred, in November 2001, the Service began developing a modeling tool  designed to identify the least-cost network, given current service  standards, under several network scenarios. According to the Service, the  model will “help the Service determine which plants remain viable and  necessary within the future infrastructure, and what distribution and  transportation roles  be performed by plants that remain as parts of  an optimal, fully integrated network.” According to the Service’s  Transformation Plan, a plan to implement the results of this modeling tool  was to be completed by December 2002. By November 2003, the Service  had collected detailed operational and volume data and had developed  data-based models. In January 2004, the Service reported that the models  were being tested and validated. Since then, there has been little public  information on the results of these models or the Service’s implementation  plans.
The Service has also begun closing annexes—temporary plants used for  mail operations when space is limited— and consolidating mail processing  operations in order to address the issue of excess capacity. While new  construction is also taking place, some of these projects have been in the  planning stages for years. Consequently, it is unclear whether the Service is  incorporating its future infrastructure needs into its current projects.
Between fiscal year 2002 and 2004, the Service closed 50 annexes.  According to Postal Service officials, decisions to close annexes are based  on volume and do not take future network configuration into  consideration. Because annexes are usually staffed by temporary  employees, for whom the Service does not have the same notification and  reassignment requirements as it does for permanent employees, they are  easier to close than other plants and the closing can be done relatively  quickly and with little controversy. Also, while most processing plants are  owned by the Service, most annexes are leased and therefore can be closed  without having to dispose of the asset. Table 8 shows the number of plants  and annexes owned and leased by the Service.
However, according to Service officials, closing annexes is a short-term  solution. In some cases, the Service is planning on eliminating certain types  of plants altogether. For example, the Service’s Chief Operating Officer told  us that there is no longer a need for processing mail at air mail centers  because, due to technological advances, mail can be assigned to specific  flights right at the mail processing and distribution plants. The leases for air  mail centers are typically very expensive; and in many areas of the country,  the Service is considering closing down the plants as the leases expire.  Another example is the reduction and eventual elimination of the separate  address barcoding centers, remote encoding centers. Enhancements in the  ability of automation equipment to read addresses have now significantly  reduced the need for remote encoding centers. Initially, the Service had 55  of these centers and is now down to 17.
In several areas, rather than closing entire plants, the Service has  consolidated sorting operations at several plants into one plant. For  example, in the Pacific Area, Saturday mail processing has been  consolidated from 23 plants to 11 plants. An area official told us that the  consolidation effort began a few years ago in response to volume declines.  The official pointed out that consolidation of Saturday mail processing  reduces processing costs, but may increase transportation costs because  the mail has to be rerouted to the plant that is processing the consolidated  volumes. The Service is able to consolidate Saturday processing because  there is no delivery on Sunday. Therefore, the Service can reroute the mail  and still meet its service standards. Officials in other areas told us that they  are also consolidating Saturday processing. While efforts to close plants  and consolidate operations have taken place, the Service has not provided  any public information on its future closings and consolidations, nor does it  have a standard procedure in place for closing plants, and instead operates  on a case-by-case basis.
The Service has begun constructing, or has approved funding for the  construction of new plants because, as stated earlier, some plants cannot  accommodate necessary equipment, do not have room for current  operations, or are not optimally located. For example, in Philadelphia, the  Service is building a new processing and distribution center to replace the  current one, which was built in 1935 and consists of two four-story  buildings connected by a bridge. Mail at this plant is processed on separate  floors and is moved between operations using elevators. The new plant will  be two stories but will have a tray management system that will assist in  moving the trays between the floors. It will also be able to accommodate  mail-processing equipment that will not fit in the current plant and will  have more dock space. According to the manager at the Philadelphia plant,  moving to the new building should increase productivity and decrease the  workhours currently needed to move mail between operations. The Postal  Service Board of Governors has also approved funding for new plants in  Maine and Michigan.
section_title: The Service Is Increasing Its Automated Operations to Improve Productivity and Efficiency
paragraphs: The Service is completing the automation of letter mail processing and  focusing efforts on automating flats and parcels to increase productivity  and reduce costs in response to changes that have occurred in the mailing  industry. The Service is automating the processing of undeliverable-as- addressed mail, deploying automated flat sorting equipment and deploying  a promising new parcel-sorting machine. However, increased automation  contributes to excess capacity and it is not clear how the Service intends to  reduce this excess capacity as its operations become more automated.
subsections: section_title: Letter Processing Automation
paragraphs: The Service is continuing its automation of letter mail by focusing on  controlling the cost of undeliverable-as-addressed mail, which includes  mail that is improperly addressed and change of address mail. Annually, an  average 4.3 billion letters are undeliverable-as-addressed and require  additional processing steps to verify and sort the mail to the correct  address. This mail costs the Service approximately $1.8 billion a year.  Currently, undeliverable-as-addressed mail is processed to the delivery unit  where the carrier identifies the piece as undeliverable. The mail is then  transported to a Computerized Forwarding System site, where the  undeliverable-as-addressed mail is manually keyed and redirected for  processing to the correct location. This means that each piece is essentially  processed twice, resulting in increased costs. To address this expenditure,  the Service is deploying software technology called the Postal Automated  Redirection System. By scanning each piece of mail and comparing it with  a computerized database of change of address forms, the software  identifies undeliverable-as-addressed letter mail at the first automation  handling and redirects the mail to the current address, thus, reducing the  handling and transportation of undeliverable-as-addressed mail. The  Service expects to save approximately 5 million workhours annually upon  completion of the program. However, upon completion, the Postal  Automated Redirection System will only redirect undeliverable-as- addressed letter mail. Flat undeliverable-as-addressed mail will continue to  be processed through the Computerized Forwarding System.
section_title: Flat Processing Automation
paragraphs: The Service has recently deployed automation equipment for flat mail that  is intended to improve productivity and reduce handling costs of over 50  billion flat pieces processed each year. In 1982, the Service began moving  flats out of manual processing by introducing mechanized sorting  machines. However, the Service experienced problems with the  mechanized machines, including frequent jams and high maintenance  costs. Many of these problems were due to mail pieces that were wrapped  in plastic, or too flimsy to be processed on the equipment, and resulted in  an increase in the unit mail processing cost for flat mail, particularly  periodicals. In fiscal year 1996, the Service began replacing the older  machines with a flat sorting machine (FSM 1000) that, although still not  automated, was designed to handle pieces wrapped in plastic and less rigid  pieces. In 2000, the Service also introduced an automated flat sorting  machine (AFSM 100) that contains an automated flat feeder and optical  recognition technology to read addresses. In plants that do not have  enough flat volume to justify deployment of the AFSM 100, the Service is  modifying the existing FSM 1000 to include scanning capabilities that  replace the need for manual keying. The AFSM 100 has a throughput rate of  17,000 or more flat pieces of mail per hour, which is more then twice as fast  as the FSM 1000. As seen in table 9, the higher throughput results in higher  productivity than manual or mechanized operations.
While the AFSM 100 has a faster throughput for processing flat mail than its  predecessor, when it was first deployed, mailers experienced problems  with the feeder system ripping the covers, which generally contain  addresses, off of magazines. Consequently, subscribers were not receiving  their magazines or were receiving just the cover. The Service is currently  working to enhance the feeders with upgrades designed to significantly  decrease the amount of damage. In addition, the equipment requires many  workhours to prepare the mail to be fed through the machine. Therefore,  some of the benefit of the increased productivity may be lost. For example,  most mail that will be processed on the AFSM 100, must first be stacked  into a flat mail cart, which takes 40 minutes for one employee to fill. Due to  the speed at which the AFSM 100 can process flats, six carts have to be  manually prepared for each hour the AFSM 100 is run, resulting in a  significant amount of workhours needed to prepare the flat mail and square  footage needed to store the prepared mail waiting to be processed on the  equipment. The Service has said that it is exploring ways to automate and  standardize the mail preparation process to reduce workhours. Figure 13  shows empty flat mail carts and the space needed to store them and the  volume of flat mail in a flat mail cart when it is full.
Unlike letter mail that is sorted on automated sorting machines into the  order the mail will be delivered on the carrier route (delivery point  sequence), flat mail must be sorted manually by the carrier into delivery  order. The Service is exploring automation that would sort flat mail into  delivery sequence order to reduce the need for the carrier to sort flats in  the office and technology that would package flat and letter mail together  for delivery operations to eliminate carrier sorting. While this technology is  still in the research and development stage, it could eventually have a  significant effect on the Service’s infrastructure and on operations and mail  processing across the entire postal network including how mailers prepare  and present their mail to the Service. This has raised concerns among  mailers.
section_title: Parcel Processing Automation
paragraphs: To increase efficiencies in parcel processing, the Service has developed  automation to reduce manual handling and increase processing capacity.  The Service has deployed the Singulator Scan Induction Unit (SSIU), which  has improved productivity and sort accuracy for processing packages at  the BMC by reducing the need to manually key in parcel addresses. The  SSIU is capable of scanning over 5,000 parcels per hour, and eliminates 80  percent of all clerk keying operations at 19 of the 21 BMCs. The equipment  cannot be installed in the remaining 2 BMCs due to the unique design of the  equipment and the layout of the plants.
The Service is also in the process of deploying the next generation of parcel  sorting equipment at the processing and distribution plants called  Automated Package Processing Systems (APPS), which will process small  parcels and bundles of mail. The APPS machine is expected to replace the  small parcel and bundle sorters in larger plants and does not require  manual keying of each piece, reducing workhours significantly for the  Service. The automated package processing machine is expected to  increase processing capacity, productivity, and sorting accuracy of parcels  and bundles of mail. However, as seen in figure 14, the APPS machine is  very large and many plants do not have the floor space to accommodate it.  There are several standard configurations for the APPS machine that  require between 12,100 sq. ft. and 32,100 sq. ft. Some Service officials  expressed concern because they do not have enough room for the new  machine in processing plants, and there are only a few plants that will be  able to accommodate the equipment.
section_title: The Service Is Improving Its Material Handling Operations
paragraphs: The Service is working to expand mechanization and improve productivity  in order to reduce workhours in the methods employed to move mail  between operations, prepare mail for processing, and load and unload mail  from trucks, known as material handling. However, cost concerns limit the  effectiveness of these initiatives. The Service has deployed various systems  to move trays of mail throughout its processing plants, including the low  cost tray sorter, the tray management system, and a prototype of the  universal transport system. Between fiscal year 2000 and 2003, the Service  reduced its material handling workhours in 244 processing plants by 11  million or 11 percent. However, the Service recently announced that it was  curtailing the deployment of the universal transport system because of low  return on investment.
To reduce material handling workhours and limit the amount of manual  labor needed to move mail between operations, the Service has deployed  Low Cost Tray Sorters (LCTS), which are essentially conveyor belts used to  move trays of mail between various operations. LCTS will replace the  current method of loading mail into handcarts, manually moving the  handcarts between operations, and unloading the handcarts. According to  the Service, LCTSs are configured to the unique needs of each particular  processing plant and are only justified and deployed on a site-specific  basis. To date, the Service has deployed the LCTS in 160 plants; however,  the Service has stated that additional site-by-site justifications are possible  resulting in additional LCTS deployments. Figure 15 shows one version of  the LCTS.
The Service has also installed the Tray Management Systems in a number of  postal plants. The Tray Management Systems is an automated system that  manages and controls mail transport, staging, and retrieval of letter and flat  mail trays throughout a plant on a conveyor belt system by scanning  barcodes and directing the trays to mail processing equipment. The Service  initially planned on deploying 42 systems but temporarily suspended  deployment because of capacity and reliability problems. In 1998, the  number of systems to be deployed was reduced to 23 sites costing $497.3  million. Only three multistory plants have the Tray Management System.
The Service recently abandoned an effort to automate material handling  due to low return on investment of its experimental Universal Transport  System. This system was designed to expand the processing of product  lines beyond that of traditional Tray Management Systems, which only  process letter and flat trays. Instead, the Universal Transport System is a  system that transports trays, bundles, packages, and sacks throughout a  plant to enhance work processes and improve information flow. The  Service spent $27.3 million developing this system in a processing plant in  Fort Myers, FL, over the past 5 years. However, the Service stated that it  has no plans for deploying the system to other processing plants.
section_title: The Service Has Made Changes to Its Transportation and Distribution Network to Address Demographic and Transportation Changes
paragraphs: To improve efficiency in its transportation and distribution network, the  Service is implementing programs designed to increase utilization of  truckload capacity, increase flexibility in transportation contracting, and  reduce redundancies.
subsections: section_title: The Service Has Developed a Tool to Improve Information Used to Optimize Truckload Capacity
paragraphs: The Service has developed a Transportation Visibility Strategy designed to  help management increase utilization of truckload capacity. According to  Service officials, currently, 35 to 40 percent of truckload capacity is not  being used, and without accurate and complete data on mail volume per  truck, the Service has been unable to optimize load capacity. One way in  which the Transportation Visibility Strategy is intended to increase  efficiency is by using actual volume data in network planning and  optimization. Instead of relying on estimates to determine truckload  volume, the new strategy will incorporate scanning technology and data  management software to determine the origin and destination of mail, and  to assign it to a specific route. Having more accurate data on how much  mail is coming from or going to any given destination will enable the  Service to analyze mail density on travel routes, and consolidate mail  traveling to the same location, resulting in fuller trucks. The Service has  stated that this strategy will be employed at about 130 plants by fall 2005,  which will afford it the ability to capture data on 78 percent of the Service’s  originating highway volume and automate 70 percent of the data collection  activities that are currently performed manually.
section_title: The Service Is Working to Increase Flexibility in Its Transportation Planning
paragraphs: The Service has implemented a new contract management system to  support the solicitation, award, and administration of its highway contract  routes and improve flexibility in the transportation network. Traditionally,  the Service has entered into 4-year contracts with its transportation  suppliers. According to Service officials, at times, these contracts do not  support efforts to create a flexible transportation network. This is because  4-year contracts commit the Service to agreements that may not reflect  changing needs such as mail volume fluctuations and changes in  processing operations. Also, the Service may not be able to easily add or  remove needed trips. Service officials have stated that the use of the new  contract management system, in addition to the mail volume data provided  through the Transportation Visibility Strategy, will allow the Service to  enter into 1 or 2 year transportation contracts that allow it to more  accurately plan transportation and routing of mail. The Service is also  planning to implement a Transportation Optimization Planning and  Scheduling tool that is intended to allow it to conduct long- term planning  and dynamic scheduling of its mail transportation. The Service manages  over 17,000 highway contract routes and as contracts are renewed, these  new systems will allow the Service to assess costs and service performance  associated with these contracts.
section_title: The Service Intends to Reduce Redundancies in Transportation and Distribution Systems by Expanding Its Hub and Spoke Program
paragraphs: The Service plans on expanding its hub and spoke program (HASP), and  modifying its Bulk Mail Center (BMC) networks to address redundancies in  its transportation and distribution network. Currently, the Service  transports First-Class Mail through its HASP network and Standard Mail  through its BMC network, which may create redundancies on routes  serviced by both networks. Figure 16 shows the current locations of HASPs  and BMCs. By eliminating redundancies across these networks, the Service  believes that it will be able to cut its transportation costs and improve its  efficiency. HASP creates a consolidation hub within an area, thus  eliminating some inter-plant truck trips between different processing  centers, and their associated costs. Currently, the Service has 13 HASPs  located in 8 of its 9 regional areas. The Western Area, which is the largest of  the Service’s 9 geographic areas, covering 1.7 million square miles, does not  have HASP. The Service is considering developing two HASPs in this area,  attaching them to the Kansas City, MO, and Denver, CO, processing and  distribution centers. Another method the Service is considering to reduce  redundancies in its transportation network is to modify its BMC network  for use as regional distribution centers included in the hub and spoke  program.
section_title: The Service Has Designed Several Programs to Increase Productivity and Reduce Workhours
paragraphs: The Service has designed several programs to increase processing  productivity and decrease variances in productivity between plants,  including its Breakthrough Productivity Initiative (BPI) and  Standardization Programs, Activity Based Costing (ABC), and Labor  Scheduler.
subsections: section_title: Breakthrough Productivity Initiative and Standardization
paragraphs: The Service has developed a Breakthrough Productivity Initiative that  measures each plant’s processing performance against nationally  established targets to increase processing productivity and decrease  variations in productivity between plants. This initiative includes a  recognition program that provides plant managers with financial incentives  to perform at their target productivity. The Service establishes target  groups and productivity targets for each of these groups. Plants are placed  in a group and are compared with the other plants in the same group.  Postal officials explained that incentives to increase productivity are given  in the form of bonuses for managers and reduced budget allocations for  plants. As part of this initiative, the Service has established a  Standardization Program. This program identifies “proven practices” in  mail processing that have resulted in high productivity for processing  plants and communicates these practices, and the subsequent increases in  productivity that result from them, to other processing plants.
The goal of standardization is eventually for all plants to certify that they  are reaching set performance targets. Because there may be more than one  way to reach a productivity target, a plant does not have to use the proven  practice; it only has to meet its productivity target and is provided with a  proven way to meet the goal. In addition, targets are reviewed to determine  if they need to be adjusted based on demonstrated performance. The first  operation to be certified under this program is the Automated Flat Sorting  Machine (AFSM 100). The AFSM 100 operations have been standardized,  and all plants that use this machine must be certified in them, that is, the  operations must all be as productive as their given target. Certification of  this operation has resulted in the Service achieving a 6.8 percent increase  in performance in fiscal year 2003 with 44 percent of its sites certified.  Further, as of August 2004, with 100 percent of its sites certified, the  Service achieved record productivity performance of 2,015 pieces per hour  being processed, for a 17.7 percent increase in productivity over fiscal year  2003.
section_title: Activity Based Costing
paragraphs: The Service has begun using an Activity Based Costing program to  determine differences in unit operating costs among plants and to identify  opportunities for savings in plants. For example, a plant’s mail volume,  maintenance needs, or workforce size may affect the plant’s operating  costs. The Activity Based Costing program assigns costs to plants for  specific activities and products and provides managers with the ability to  identify potential areas where high costs can be reduced. To date, the  program is not used in BMCs, but will be piloted in three BMCs in fiscal  year 2005.
Using Activity Based Costing in conjunction with BPI would allow plant  managers to view the costs associated with different levels of productivity.  Managers have an incentive to increase BPI productivity but the costs  associated with this productivity may be high. As seen in figure 17, there is  a strong correlation between BPI productivity and the cost of processing  letter mail. However, not all plants with high productivity have low  processing costs. For example, two plants with very similar productivities  in fiscal year 2004—2,251 and 2,250 total pieces per hour—had average  letter processing unit costs that were about 2 cents apart, with one being  about 4.8 cents, and the other about 2.8 cents. Service officials have said  that there are plans to expand the Activity Based Costing program. Activity  Based Costing was made available to managers in 2003, and officials stated  that they are continuously receiving requests from interested employees  for training.
The Service has implemented the Labor Scheduler, a model that will allow  managers to optimize the number and type of employees required for each  mail processing shift and operation. The Labor Scheduler is designed to  allow plant managers to avoid overstaffing or understaffing that can lead to  higher mail processing costs or poor service. Several problems have arisen  with the use of the Labor Scheduler, including poor data quality and  insufficient communication used when implementing it.
In February 2004, the Service’s Office of Inspector General (OIG) found  several problems with the Labor Scheduler. The managers we interviewed  corroborated these problems. For example, the OIG determined that the  model’s input data could not be validated because it was either incomplete  or unavailable. Therefore, the model’s output data were not reliable. In one  instance, the model identified 112 positions in a plant to be changed or  reduced. However, after a significant number of the positions were  reduced, the plant’s workhours and overtime increased. A Service official  responsible for implementation of the Labor Scheduler program said that  the same type of data are used for each plant but acknowledged that some  sites might need to improve their data. This official also said that the output  of the model is only as good as the data collected and how it is used. For  example, a headquarters’ official told us that data can be manipulated to  show a desired outcome. During our plant visits, some managers told us  that they were unable to use the Labor Scheduler because its outputs were  unrealistic and could not be implemented.
The OIG also found that there was ineffective communication between the  Labor Scheduler program office and plant management. Management was  unclear on how to use the model and how to use and communicate the  model’s results. For example, the OIG found that managers were unsure  how to manage multiple employee shift start times. This concern was also  raised during our site visits, when a plant manager told us that the model’s  output recommended the plant shifts should start at 12-14 different times.  The plant manager said that it would have been hard for managers and  employees to keep track of the schedules.
section_title: The Service Faces Challenges in Addressing Productivity Variations among Plants and Excess Capacity
paragraphs: Despite the recent progress the Service has made in improving efficiency  and cutting costs, it faces challenges in reducing productivity variances  among plants and eliminating excess capacity.
subsections: section_title: Difficulties in Reducing Variations in Productivity among Plants
paragraphs: The Service has had difficulty reducing variations in productivity across  plants, in part, because standardization efforts are hindered by the  complexity in operations and the physical differences in plants. In fiscal  year 2001, the average productivity at small plants was 446 pieces per hour  higher than the average productivity in large plants. This difference shrunk  to 405 pieces in fiscal year 2002, then rose again in fiscal year 2003 to 436  pieces per hour, and 474 pieces in fiscal year 2004. According to postal  officials, a key effort directed toward reducing this variation in productivity  is its standardization program. These officials said that it is difficult to  standardize some operations, such as material handling and collection,  because these operations are affected by so many variables, such as how  many trucks need unloading on any given day and how the mail is prepared  on the truck. Thus, it has been difficult to establish a measurement on  which to evaluate them. Standardization is also hampered because there  are so many different buildings in the Service’s infrastructure that it cannot  develop one uniform layout. For example, the automated parcel-sorting  machine has standard operating procedures to maximize its output, but it  comes in different physical designs to complement different plant layouts.
Service officials told us that engineers have been studying processing plant  layouts for years, and have ideas as to what the most efficient layouts are,  but have not been able to generalize plant layouts because not all plants  have the same equipment in them. Another difficulty in achieving  standardization, according to these officials, is that because the workforce  is primarily decreased through attrition, standardization processes occur  incrementally, in tandem with changes in the workforce.
section_title: Reducing or Eliminating Excess Capacity Is Difficult
paragraphs: The Service faces challenges in eliminating excess capacity while  maintaining service standards, which drive dispatch times at processing  plants. For example, one way to reduce excess capacity in the form of  workhours and transportation capacity is to consolidate mail-processing  operations from many plants into one plant. If some of the plants are then  closed and equipment disposed of, then excess physical infrastructure and  machine capacity is also reduced. However, according to a Service official,  service standards impede consolidation of mail processing because  consolidation requires re-routing mail from plants that are closer to  collection or delivery points to plants that are farther away. This official  said that relaxing service standards could greatly increase the amount of  consolidation that could be achieved. The challenge is to reduce excess  capacity while maintaining service standards.
The Service and its unions have negotiated workforce rules, which are  important in documenting how work in the plant will be performed and in  protecting workers’ rights. According to Service managers, contractual  workforce rules reduce management’s flexibility to reduce excess capacity  because these rules govern reassignments and terminating positions that  are no longer needed. For example, several Service managers told us that it  is difficult for them to move excess employees to positions where they are  needed because of these workforce rules. These workforce rules include  steps to be followed when eliminating positions, and rules regarding  transferring employees between positions, such as clerks, mailhandlers,  and carriers. When transferring between positions, employees will often  lose their seniority so they elect not to transfer. Therefore, if a plant has too  many clerks and not enough mailhandlers, it cannot simply move some  clerks to mailhandler positions. In addition, moving employees between  plants requires the Service to follow specific steps that often limit  managers’ flexibility. One area vice president told us that it is very  challenging to move employees from one plant to another. For example,  this vice president had worked out an agreement between the regional  unions to allow employees to move from a plant that had too many  employees to a plant with too few. However, local union representatives  wanted part-time employees in their district to be converted to full-time  employees and given positions in the plant with openings rather than have  current full-time employees from the over-staffed plant move. Therefore,  they halted the agreement at the last minute. The workforce contracts also  include “no layoff” clauses and procedures that must be followed when  plants are closed or tours consolidated, including a formal agreement that  requires 60-days notice whenever the Service is going to close a plant.
Another obstacle to eliminating excess capacity is the resistance the  Service has historically encountered when it tries to close plants. In each of  the three cases we reviewed, the Service encountered resistance to its  plans to close plants. For example:   When the Service wanted to move operations from the Pendleton, OR,  plant to nearby Pasco, WA, because of equipment limitations in  Pendleton, many people protested. Local congressional representatives  made a formal request to the Service not to close the plant. In response,  the Service modified the equipment to fit into the existing plant.
When the Service considered moving the business mail entry unit from  St. Paul, MN, to Minneapolis, MN, because of security concerns and  cramped plant space, local union members and representatives got  involved and urged the Service to reconsider. Although none of the 30  employees at the St. Paul plant would have lost their jobs, their  schedules and commutes would have changed. The Service agreed to  delay the closing pending further review.
At the Marina Del Rey, CA, processing and distribution plant, local  managers began moving some operations out of the plant and  consolidating them with operations at the Los Angeles, CA, plant. Before  any decisions were announced at the headquarters level, word got out  that the plant was being considered for closing. Local unions contacted  local government representatives, and union members picketed the  plant. Some of this resistance was due to the Service’s failure to  communicate with its employees and unions regarding the Marina Del  Rey plant. National union representatives told us that the Service never  contacted them about the possible closing, and they only heard about it  after the possible closing was discussed in a newspaper article.
section_title: The Service’s Strategy for Realigning Its Mail Processing Infrastructure Lacks Clarity, Criteria, and Accountability
paragraphs: We developed criteria for evaluating the Service’s strategy, including how  effective it would be in eliminating excess capacity and whether the  strategy was transparent and accountable. The Service’s strategy raises  several issues. First, the Service’s strategy for realigning its mail processing  and distribution infrastructure is unclear. Second, it does not include  specific criteria and processes for eliminating excess capacity, including  the removal of unnecessary facilities. Third, the Service’s strategy excludes  stakeholder input, is not sufficiently transparent and accountable, and  lacks performance measures for results of decisions.
subsections: section_title: The Service’s Strategy for Realigning Its Mail Processing and Distribution Infrastructure Is Not Clear
paragraphs: The Service’s strategy for realigning its mail processing and distribution  infrastructure has not been clear because the Service has outlined several  seemingly different strategies over the past 3 years. In 2002, the Service  announced a strategy for realigning its infrastructure that outlined an  ambitious effort to “initiate sweeping logistics changes.” According to the  Service, a modeling tool referred to as Network Integration and Alignment  (NIA) was to be used to determine what specific changes would be made.  These changes were to include consolidation of plants, redefined roles for  plants, reduced transportation costs, and a streamlined network. An  implementation plan for this strategy was to be developed by December  2002. However, to date the Service has not developed an implementation  plan. Following a recommendation we made, in November 2003, the  chairman of the Senate Committee on Governmental Affairs and a senator  asked the Service to provide a plan on how it intended to optimize its  infrastructure and workforce that described the criteria, process, and data  the Service was using to make decisions, as well as the strategies, timing,  and funding necessary. In December 2003, the chairmen, and ranking  minority members, of the House Committee on Government Reform and  the Special Panel on Postal Reform and Oversight also asked the Postal  Service to submit a plan on how it intended to fund capital investments  needed to ensure the long-term viability of the Postal Service, including  how the Service intended to rationalize its infrastructure and workforce. In  response, in January 2004, the Service submitted to the House Committee  on Government Reform, a report entitled, Infrastructure and Workforce  Rationalization: Funding Key Capital Investments. This report, which  was not made public by the Postal Service, described a “promising  alternative” being considered that the Service called a consolidation hub  concept. Under this concept there would be two basic types of facilities,  origination and destination facilities, which would be the initial recipients  of collection mail and the final plant before delivery, and consolidation  hubs where the mail would be consolidated and distributed. According to  the report, “the major difference between this concept and the current mail  processing environment is that it envisions a single uniform network.” “A couple of years ago there was a lot of fanfare and misunderstanding about a concept  known as “NIA” - Network Integration and Alignment. Many saw it as the ultimate plan to  consolidate and close facilities. Well, it’s not. “Why? Because nobody can predict 5, 10, or 15 years from now what mail volume will be, or  what type of mail processing equipment we will be using to sort the mail. So we have  decided, instead, to do what we’ve done for decades. That is, take the next step in evolving  our networks, and that’s our E-N-D game -- short for Evolutionary Network Development.  “It’s an END game that never ends, because rationalizing and optimizing security, plants,  processing systems, transportation, and staffing is something we have to continue to do to  keep our networks efficient and our systems affordable.”
Neither the Service’s report, the strategy outlined in meetings with Postal  Service officials, or the Postmaster General’s speech sets criteria for  making realignment decisions, nor do they include a process for making  these decisions. In addition, no details about the Service’s vision of how its  planned changes will remove excess capacity in the network, minimize  productivity variances, maximize overall efficiency, or how much the  Service will save in costs has been provided. The Service has procedures  that it uses when making decisions to consolidate operations in its mail  processing plants, which are outlined in appendix N of the Transformation  Plan. These procedures include a feasibility study, preparation of proposal  documentation, an approval process, and implementation steps. However,  in discussions with Service officials, we were given vague and confusing  information on the Service’s procedures for closing plants. Consequently, it  is not clear how these procedures relate to the Service’s realignment  strategy, whether these procedures are used when closing plants, are  applicable to all plants, or if these procedures are used consistently. In  addition, the procedures outlined in appendix N lack specificity regarding  who is responsible for initiating proposals,   who conducts feasibility studies and how,   what criteria are used to evaluate proposals,   who is responsible for approving these proposals,   how these proposals are implemented, and  who is held accountable for these decisions.
It is also unclear how stakeholders are notified, when they are notified, and  by whom.
section_title: In Attempting to Evaluate the Service’s Strategy We Developed Criteria
paragraphs: In evaluating the Postal Service’s strategy, we established criteria based on  the Service’s stated goals for realignment, our previous work, the  Committee on Government Reform report that accompanied House postal  reform legislation (House Report), the Committee on Governmental Affairs  report that accompanied Senate postal reform legislation (Senate Report),  and the President’s Commission on the United States Postal Service  (Commission) report. In its Transformation Plan the Service stated, “the  mail processing network infrastructure will be redesigned to meet volume  forecasts, customer requirements, and competitive pressures. Streamlining  and simplifying the distribution network will permit consolidation of  sorting facilities and elimination of excess resources.” In our previous  work, we emphasized the importance of transparency and accountability  for government institutions such as the Postal Service. Both the House  and the Senate Reports also state the importance of transparency to the  Service achieving its realignment goals. In previous testimony, we stated  that in order to be successful in its realignment the Service will need the  input and support of its major stakeholders, such as mailers, employees,  communities, and government representatives. The Commission has  stated that it is important for the Service to ensure that an appropriate  process for soliciting and dealing with stakeholder concerns is  implemented. The Service identified one of the benefits of realignment as  reduced total costs for the Service and mailers. Accordingly, in evaluating  the Service’s strategy for realigning its infrastructure, we used the  following criteria: 1. Will the Service’s strategy result in a network that is efficient and  flexible, and will it lead to the elimination of excess capacity? 2. Does the Service’s strategy include stakeholder input, and is it  transparent and accountable under the following guiding principles;  It is based on a clear, transparent, and consistently applied process.
It ensures that when decisions are made they are conducted as fairly,  effectively, and efficiently as possible.
It provides for accountability in connection with decisions.
section_title: The Service’s Strategy May Not Reduce Excess Capacity and Is Not Transparent and Accountable
paragraphs: It is unclear how the Service’s strategy will result in elimination of excess  capacity because it does not include criteria for making realignment  decisions that include considering the effect on excess capacity, nor does it  include performance measures related to eliminating excess capacity. In  addition, the Service’s strategy excludes stakeholder input and is not  sufficiently transparent or accountable. The strategy does not include  criteria for making decisions or processes for implementing decisions,  which would help ensure fairness and effectiveness, nor does it include  performance measures for evaluating decisions.
subsections: section_title: The Service’s Strategy May Not Result in Elimination of Excess Capacity
paragraphs: In discussions with Service officials, we were told that the closing of the  Marina Del Rey processing plant was a good example of the Service’s  strategy. The Service will close the Marina Del Rey plant and move  operations into its South Los Angeles plant. The Marina Del Rey plant had  productivity in fiscal year 2004 of 1,598 pieces per hour, while the Los  Angeles plant had productivity of 1,139 pieces per hour. According to  Service officials, none of the 900 employees at the Marina Del Rey plant  will lose their jobs. Instead they will be relocated. The Service has also  stated that it has no immediate plans for the building once the operations  are moved out of it. It is not clear how closing this plant will increase  efficiency or reduce excess capacity. Criteria for making realignment  decisions would help clarify the Service’s decisions.
As stated earlier, the Service has also been consolidating shifts across its  infrastructure. These consolidations have contributed to the Service’s  impressive reduction in workhours over the past 3 years. However,  consolidating shifts may lead to excess capacity in other areas. For  example, if mail is no longer processed on certain shifts this means that the  processing equipment sits idle during that shift. In addition, if several  plants in a particular area have eliminated processing shifts it may be  feasible to consolidate these plants and dispose of excess physical  infrastructure. Due to the Service’s lack of transparency about the results  of its network modeling activities, however, it is difficult to assess the  extent of opportunities for eliminating unnecessary plants. The Service’s  strategy of taking advantage of opportunities as they arise may not result in  consolidations or closings in the areas with the most excess capacity.  Having realignment criteria that outlines at what point an area should begin  closing plants may result in better alignment of resources with mail  volumes.
In addition, the Service’s approach of taking advantage of opportunities as  they arise may prolong inefficiencies and may not address the most  pressing needs. For example, the Service has been deploying automation  equipment throughout its network although some of the plants that are  receiving equipment may ultimately be closed, which would necessitate  moving or disposing of the equipment. Similarly, equipment and  transportation costs will be higher than necessary if the network is not as  streamlined and simplified as it could be. Furthermore, maintaining an  infrastructure that is larger than necessary requires the Service to spend  resources that it could employ elsewhere. In addition, the Service may be  forgoing revenue from the sale of excess properties.
section_title: The Service’s Strategy Excludes Stakeholder Input and Is Not Sufficiently Transparent or Accountable
paragraphs: The Service strategy excludes stakeholder input and is not sufficiently  transparent or accountable because it is not based on a clear, transparent  and consistently applied process; it is not clear that when realignment  decisions are made they are conducted as fairly, effectively, and efficiently  as possible; and it does not have performance measures for results to  provide accountability in connection with realignment decisions. To  achieve its realignment goals of an efficient and flexible network, the  Postal Service will have to have a strategy that is both transparent and  accountable. According to the Committee on Governmental Affairs report  that accompanied the Senate postal reform legislation in 2004, “it is vitally  important that the Postal Service go about its facilities realignment in the  most transparent manner possible. Transparency will  make it possible  for those affected by the Postal Service’s actions to see the connection  between those actions and the need to preserve the vital services the Postal  Service provides.”
The Service’s lack of external communication excludes stakeholder input  that could prove valuable in developing a least-cost network for the entire  mailing industry. Some stakeholders have complained that the Service does  not consult with them during planning, but only communicates when it has  already made its decisions. Mailers explained that this approach often  leads to uncertainty and lower investment in the mailing industry. For  example, one representative of a large mailing company told us that  uncertainty about what the Service is planning to do about new discounts,  and new processing operations, stifles this mailer’s investment in its own  infrastructure. Union representatives also expressed concerns about  limited information related to the Service’s realignment plans and how  these plans might affect postal employees.
The Service has stated that it is reluctant to publicly disclose information  on its realignment strategy because it believes that it will meet with  resistance from employees, communities, and government representatives  if it tells them what it is planning on doing too far in advance. While  employees and communities may resist changes that affect them,  congressional staff members have told us that Members of Congress would  be better prepared to respond to constituent concerns that arise when the  Service considers making changes to its infrastructure if the Service  provided better information, such as the Service’s criteria for its decisions.
To better inform stakeholders on its infrastructure realignment decisions,  the Service needs to make public its decisions and the criteria used to make  these decisions. There are various avenues the Service could use to inform  the public of changes and limit the burden of disclosure. For example, the  Service could include a list of the changes that were made to the Service’s  infrastructure during that year and changes that are planned for the coming  year in one of its existing reports, such as the Service’s annual  Comprehensive Statement.
section_title: Conclusion
paragraphs: The Service faces future financial challenges due to its declining First-Class  Mail volume and has excess capacity in its current infrastructure that  impedes efficiency gains. The Service has stated that one way to increase  efficiency is to realign its processing and distribution infrastructure.  However, important questions remain about how the Service intends to  realign its infrastructure to meet its future needs because the Service has  not provided clear public information about its planned direction for  realigning its infrastructure and workforce. The Service’s currently stated  strategy is an evolutionary approach that prolongs inefficiencies related to  excess capacity and productivity differences among plants, resulting in  higher costs. The Service’s lack of communication often leads to confusion  among stakeholders and communities about what the Service is doing and  why and excludes input that could prove valuable to developing a least-cost  network across the entire mailing industry. Because the Service does not  have criteria to be considered, or a process to be followed, when making  realignment decisions, it is not clear that these decisions will be made in a  manner that is fair to all stakeholders or that is efficient and effective. It is  also not clear that the Service’s strategy provides accountability for  realignment decisions, because there is no process for evaluating results,  no criteria for measuring results, and no stated policy for making managers  accountable for decisions.
section_title: Recommendations for Executive Action
paragraphs: To enhance the Service’s transparency of its decisions related to realigning  its infrastructure and ensure that these decisions advance the Service’s  realignment goals, we recommend that the Postmaster General take the  following three actions:  establish a set of criteria for evaluating realignment decisions;  develop a mechanism for informing stakeholders as decisions are made;   develop a process for implementing these decisions that includes  evaluating and measuring the results, as well as the actual costs and  savings resulting from the decisions.
In taking these actions, the Service should reconcile any planned  infrastructure realignment changes with the criteria used to make the  decisions.
section_title: Agency Comments and Our Evaluation
paragraphs: The U.S. Postal Service provided comments on a draft of this report in a  letter from the Chief Operating Officer and Executive Vice President dated  March 18, 2005. These comments are summarized below and included as  appendix IV. The Service concurred with our description of its mail  processing and distribution infrastructure and the major business and  demographic changes that have effected the Service’s operations. The  Service did not comment on our conclusions or recommendations.
With respect to the Service’s statement that one of the key strategies of its  Transformation Plan is an initiative called Evolutionary Network  Development (END), this initiative was not discussed in the Service’s  Transformation Plan. Instead, the Transformation Plan discussed an  initiative referred to as Network Integration and Alignment (NIA), which  called for analyzing and redesigning the existing network with the goal of  creating a flexible logistics network and reducing overall costs for both the  Service and the mailing industry as a whole. In addition, NIA was to  determine which facilities would be necessary within the future  infrastructure. In its January 2004 report to Congress on its infrastructure  and workforce rationalization, the Service further discussed the status of  NIA and said that it planned to pilot network alternatives in 2005 and if the  results of the pilots were favorable, it could have a completely optimized  network in place by the end of 2009. The NIA initiative appears to be more  comprehensive and integrated in scope than the evolutionary approach  referred to as END, which was described to us as a strategy that takes  advantage of opportunities as they arise. As stated in the body of this  report, the Service’s strategy remains unclear because the Service has  outlined seemingly different approaches to realigning its processing and  distribution infrastructure.
Regarding the Service’s statement that Area Mail Processing (AMP) is one  of the tools it uses to implement the goals of END, we remain concerned  that these goals may not be realized because it is not clear whether AMP  includes criteria for making realignment decisions, and if so, what these  criteria are, and that therefore the processes associated with AMP are not  responsive to the recommendations we made. Furthermore, the AMP  guidelines do not include determining the disposal of facilities or the  reduction of excess capacity. Consequently, it is not clear how AMP  directly relates to reducing excess capacity, furthers the overall redesign of  the mail processing and distribution infrastructure, or relates to the  Service’s vision of its future infrastructure.
The Service also stated that the decisions it makes will be made with  stakeholder input. However, it is not clear how stakeholder input will be  incorporated into realignment decisions. As previously mentioned,  congressional staff told us that Members of Congress would be better  prepared to respond to constituent concerns if the Service were more  transparent regarding its infrastructure decisions. Hence, we continue to  believe that a formal mechanism for notifying stakeholders of realignment  decisions, as we recommended, is vital.
The Service stated that because it cannot accurately predict future changes  in the hard copy communications and package delivery industry, the  changes it seeks to make must be incremental. However, the President’s  Commission pointed out in its report that regardless of the economic  climate, the nation is due the most cost-effective, efficient, high-quality  Postal Service that can be provided. To this end the Commission  recommended that the Service accelerate its efforts to redesign the postal  network. Furthermore, the Service itself stated in its Transformation Plan  that this is “the ideal time to initiate sweeping logistics changes.” We  believe that without clarity, criteria, and accountability in its realignment  strategy, the Service risks falling short of achieving the major productivity  gains that will be needed to offset rising costs and maintain high-quality,  universal postal service at affordable rates.
As agreed, unless you announce the contents of this report earlier, we plan  no further distribution until 30 days after the issue date. At that time, we  will send copies of this report to the Chairman and Ranking Minority  Member of the House Committee on Government Reform; the Chairman  and Ranking Minority Member of the Senate Committee on Homeland  Security and Governmental Affairs, Senator Thomas R. Carper, the  Postmaster General, and other interested parties. We will also provide  copies to others on request. This report will also be available on our Web  site at no charge at http://www.gao.gov.
If you have any questions regarding this report, please contact me at  siggerudk@gao.gov or by telephone at (202) 512-2834. GAO contacts and  acknowledgments are listed in appendix V.
section_title: Objectives, Scope, and Methodology
paragraphs: To describe the impact of major changes on the Service’s mail processing  and distribution infrastructure, we discussed with Postal Service officials,  mailing associations, mailers, and union representatives their views on  changes that have occurred in the mailing industry and the impacts these  changes have had on the Postal Service. Through our initial discussions we  narrowed the focus of our objective to three major changes, (1) changes in  the marketplace, (2) the evolution of mail processing and its related  infrastructure, and (3) shifts in demographics and transportation modes. To  gain more insight into the first change, we analyzed mail volume trends  over the past 30 years and reviewed literature related to these trends,  including special reports prepared for the President’s Commission on the  United States Postal Service, a special report prepared by Pitney Bowes for  the 12th Conference on Postal Delivery and Economics, Postal Service  presentations, and articles and studies prepared by mailers and mailing  groups. In addition, we discussed the cause and effect of mail volume  declines with Service officials. We also reviewed, analyzed, and discussed  with Service officials, mailers, mailer associations, and union  representatives, articles related to competition in the mailing industry and  changes in the role of mailers. To further our understanding of the  evolution of mail processing, we reviewed, analyzed, and discussed with  Service officials, data related to the age, location, size, ownership, and  equipment complement of the Service’s processing and distribution  infrastructure. We also reviewed literature on the history of mail  processing and changes that have occurred in mail processing operations  over the past century. In addition, we conducted site visits to mail  processing plants in the Capital Metro, the Eastern, the Southeastern, and  the Pacific areas, and discussed mail processing changes with management  at these plants. We also discussed related changes with eight area vice  presidents and the Manager of Capital Metro Area Operations, as well as  Service officials, mailers, mailer associations, and union representatives.  To assess the impact of demographic shifts, we reviewed, analyzed, and  mapped geo-spatial data from the Postal Service and Census Bureau. We  also reviewed related articles and Service documents. To analyze the  impact of these changes, we reviewed, analyzed, and discussed with  Service officials, data related to productivity and cost variances, as well as  excess capacity in the Service’s processing and distribution infrastructure.
To describe the actions the Service is taking to achieve a more efficient and  flexible network in response to these changes, and the challenges  associated with implementing these actions, we reviewed, analyzed, and  discussed with Service officials the Service’s Transformation Plan and  related updates. We also reviewed Postal Service documents related to  operations, including Annual Reports, Comprehensive Statements, Capital  Investment Plans, Investment Highlights, Five-Year Strategic Plans,  Corporate Automation Plans, Integrated Plan for Operations, and  documentation related to specific programs. We conducted site visits to  plants in the Capital Metro, the Eastern, the Southeastern, and the Pacific  areas, and discussed initiatives and programs with management at these  plants. We also discussed these initiatives and programs and the challenges  associated with them with eight area vice presidents and the Manager of  Capital Metro Area Operations, as well as Service officials, mailers, mailer  associations, and union representatives.
To discuss the issues related to the Service’s strategy for realigning its  infrastructure, we discussed with Service officials, including the Service’s  Chief Operating Officer, how the Service intended to approach realignment.  We also reviewed Postal Service documents, including the Transformation  Plan, Infrastructure and Workforce Realignment: Funding Key Capital  Investments, and documents related to realignment. In addition, we  reviewed postal reform documents, including the Committee on  Government Reform report that accompanied House postal reform  legislation (House Report), the Committee on Governmental Affairs report  that accompanied Senate postal reform legislation (Senate Report), and the  President’s Commission on the United States Postal Service (Commission)  report. In addition, we discussed the Service’s realignment efforts with  mailers, mailing organizations, and union representatives.
We used productivity and cost data provided by the Postal Service to assess  the impact of changes on the mailing industry. We did some testing of the  data by performing basic logic tests, reviewing all related documentation,  and discussing with agency officials any apparent inconsistencies or  inaccuracies we found with the data. On the basis of those discussions, we  adjusted the data to ensure that the inconsistencies or inaccuracies we  found were corrected or clearly explained. Based on our testing, we  determined that the required data elements are sufficiently reliable for the  purposes of this engagement.
We received written comments on a draft of this report from the United  States Postal Service. The comments we received are discussed near the  end of the letter and the written comments are included in appendix IV. We  conducted our review at Service headquarters and field locations between  April 2004 and January 2005 in accordance with generally accepted  government auditing standards.
section_title: Descriptions of Various Mail Flows with Diagrams
subsections: section_title: Letter Mail Processing
paragraphs: There are a number of different processing operations that letter mail must  undergo before arriving at its final destination. Containers of loose mail are  collected from collection boxes and transported to plants that handle  collection mail through a dual pass rough cull machine that separates  machinable letter mail from other mail. The other mail consists of flat mail,  bundles, and nonmachinable pieces that go to different mail streams for  processing. Once the mail is separated, machinable letter mail is  transported to an advanced facer canceller system (AFCS). The AFCS  prepares letter mail for down stream automated processing by facing the  mail in the proper position, canceling the postage, and separating letters  into three categories. Currently, these categories include (1) handwritten  address letters, (2) machine printed address letters with no barcode, and  (3) machine printed address letters with a barcode. AFCS enhancements in  2005 will provide greater readability that will enable a more defined  separation of the mail.
Machine printed address letters without a barcode are transported to the  multiline optical character reader (MLOCR) machine where a barcode is  applied to the letter piece. If the address is not readable by the MLOCR, the  mailpiece is scanned and an image sent to an off-site remote encoding  center (REC). There, human operators view a scanned image of the  envelope, key-in the correct address information, and transmit the results  back to the mail processing plant where a correct barcode is applied to the  physical mailpiece on a delivery barcode sorter-output subsystem (DBCS- OSS) for continued automated processing. Handwritten mail from the  AFCS is sent directly to a DBCS-OSS and images of these pieces are  electronically transferred to the REC. Results from keyed information are  returned to the DBCS-OSS where a barcode is applied to the letter piece  and sorted to its appropriate destination. Machine printed address letters  with a barcode are also sent directly to a DBCS-OSS for processing.
Once the letters have barcodes, the mail is then sorted by ZIP Code on a  DBCS-OSS or a delivery barcode sorter (DBCS). Letter pieces destinating  in a different location are sorted to the first 3 digits of the ZIP Code. These  pieces are then ready for transport to other postal plants for further  processing. Letter pieces that are destinating in the same area are sorted  multiple times—this includes mail already presorted from other processing  plants. These letter pieces are sorted to 5, 9, or 11 digit ZIP Code levels.
During letter processing, pieces that are nonmachinable or have  nonreadable addresses will be rejected from the automated equipment and  must be manually processed. Depending on where in the process the piece  is rejected, employees will try to reintroduce the mail back into  automation. If the mail cannot be reintroduced into the automation  process, employees will sort the mail by hand to the 3, 5, 9, or 11 digit ZIP  Code level.
Besides collection mail, the mailing industry also delivers discount mail or  “bulk mail” to plants for processing. To claim the lower postage rates, the  mailer must have a minimum quantity and do some additional work that  makes it easier for the Postal Service to handle the mail. Based on how  efficiently they can be processed, mailings are classified by the way they  are prepared, including machinable, nonmachinable, and automation. A  single mailing usually includes multiple levels of ZIP Code sortation.  Discounted letter mail will be inducted into the mail stream at the  appropriate level of distribution based on mail class, preparation, and sort  level. Figure 18 shows how letter mail is processed.
section_title: Flat Mail Processing
paragraphs: There are a number of different operations that flat mail undergoes before  arriving at its final destination. Collection mail is loaded into a dual pass  rough cull machine that separates flat mail from other mail. The other mail  consists of letter mail, bundles, and nonmachinable pieces that go to  different mail streams for processing. Once the mail is separated,  employees will manually ensure that correct postage is applied and render  the postage unusable—cancel—on each flat piece of mail.
Once canceled, the flat pieces are prepped to be placed on a machine for  sorting. Currently, there are three different types of flat sorting machines:  automated flat sorting machine (AFSM 100), upgraded flat sorting machine  (UFSM 1000), and flat sorting machine (FSM 1000). Flat pieces destinating  in a different location from where it originates are sorted on one of the  three flat sorting machines to the first 3 digits of the ZIP Code. These pieces  are then ready for transport to other postal plants for further processing.  Flat pieces that are destinating in the same area will be sorted again to the 5  digit ZIP Code on one of the three flat sorting machines—this includes mail  already presorted from other processing plants. The AFSM 100 and the  UFSM 1000 are also used to sort flat mail to the carrier route level—9 digit  ZIP Code. If the address is not readable by the AFSM 100 or the UFSM 1000,  then the flat piece is scanned and an image is sent to an off-site remote  encoding center (REC). There, human operators view a scanned image of  the flat, key-in the correct address information, and transmit the results  back to the mail processing plant where a correct barcode is applied to the  flat.
Throughout flat processing, there will be mail that is rejected by the flat  sorting machines or due to physical characteristics is unable to be  processed on flat sorting equipment. Employees will try to reintroduce the  flats that were rejected back into the machine for reprocessing. If the mail  cannot be processed on the machines, employees will manually sort the  mail by hand to 3, 5, or 9 digit ZIP Code levels.
Besides collection mail, the mailing industry also delivers discount mail or  “bulk mail” to plants for processing. In order to claim the lower postage  rates, the mailer must have a minimum quantity and do some additional  work that makes it easier for the Postal Service to handle the mail. Based  on how efficiently they can be processed, mailings are classified by the way  they are prepared, including machinable, nonmachinable, and automation.  A single mailing usually includes multiple levels of ZIP Code sortation.  Discounted flat mail will be inducted into the mail stream at the  appropriate level of distribution based on mail class, preparation, and sort  level. Figure 19 shows how flat mail is processed.
section_title: Parcel Processing
paragraphs: Parcels can be processed a number of different ways depending on the mail  class and size. The equipment used and the type of sortation will depend on  the origin and destination of the parcel. Automation and mechanization are  only available at selected postal plants.
section_title: Parcels
paragraphs: Any class of parcels can be sorted on a small parcel and bundle sorter  (SPBS) machine. If a parcel is destinating in a different location, then a  human operator at the SPBS machine manually keys in the first 3 digits of  the ZIP Code, which directs the piece to the correct destinating bin. At  dispatch time, the parcels are ready for transport to the destinating postal  plant for further processing. If the parcel is destinating in the same area,  then the human operator at the SPBS machine manually keys in the last 3  digits of the ZIP Code, which directs the piece to the correct destinating  bin. At dispatch time, the parcels are ready for transport to a local office for  manual sortation to the delivery address.
The Service is also in the process of deploying the next generation of parcel  sorting equipment at postal plants called the Automated Package  Processing System (APPS), which will replace the SPBS machine in some  larger plants. The APPS machine will not require human operators to  manually key ZIP Code information for each parcel. APPS automates  package processing by providing high-speed throughput, automated  package induction, singulation, and optical character reader  (OCR)/barcode reader (BCR) address recognition. If the OCR/BCR  technology is unsuccessful, an image of the parcel will be transmitted to an  off-site remote encoding center (REC), where address information will be  keyed in the same matter as letter mail. APPS deployment will continue  through FY 2006.
section_title: Package Services
paragraphs: Package Services and presorted Standard Mail parcels from mailers are  processed on a primary and secondary parcel sorter machine (PSM). A  human operator will look at each parcel to locate a barcode indicating the  piece’s ZIP Code destination. If a parcel has a barcode, the piece will be  sent on a conveyor belt through the package bar code scanner (PBCS),  which will scan the barcode and directs the piece to the correct destinating  location. If the parcel is destinating outside the area, then the mail will be  sorted to the first 3 digits of the ZIP Code. If the parcel does not have a  barcode, ZIP Code information is read by a human operator who will  manually key in the destination ZIP Code location. The PBCS will then affix  a barcode to the parcel and directs it to the correct destinating location.
All parcels that are barcoded and destinating in the area can be sent  through a singulate scan induction unit (SSIU) for sorting. Parcels are sent  one at a time through a weigh-in-motion scale and then through a scanning  tunnel that will read the 5 digit ZIP Code and direct the piece to the correct  destinating bin. At dispatch time, the parcels are ready to be transported to  a local office for manual sortation to the delivery address.
section_title: Nonmachinable Parcels
paragraphs: A nonmachinable outside (NMO) parcel cannot be sorted by postal  equipment because its size or weight exceeds machine capacity or some  other aspect requires the piece to be handled manually. Examples of NMOs  include tubes, tires, golf clubs, and plants. If a parcel is destinating in a  different location, then the piece will be sorted to the first 3 digits of the  ZIP Code. The piece is then ready for transport to other postal plants for  further processing. If the piece is destinating in the same area, then it will  be sorted to the 3 or 5 digit ZIP Code and transported to a local office for  manual sortation to the delivery address.
Throughout parcel processing, some pieces will be rejected — barcodes  are unreadable, no barcode is applied, and packages break open. These  parcels will be reintroduced into the PSM for processing. If the mail cannot  be reintroduced into the PSM for processing, then employees will process  the mail manually to the appropriate delivery address. Figure 20 shows  how parcels are processed.
section_title: Glossary of Postal Terms Used in this Report
subsections: section_title: Advanced Facer Canceller System (AFCS)
paragraphs: A machine that separates letter mail by address type—script, barcode, and  machine imprinted—in support of the automation effort.  AFCS has image  lifting capability needed to support the Remote Bar Coding System.
section_title: Automated Flat Sorting Machine 100 (AFSM 100)
paragraphs: A fully automated flats sorting machine designed to streamline flats mail  processing operations and at the same time significantly reduce manual  processing.  The AFSM 100 receives mail via automatic feeders, acquires  images of script and typed mail for video encoding, and processes mail  using optical character recognition technology.
section_title: Air Mail Center (AMC)
paragraphs: A postal plant at an airport that receives, distributes, and dispatches mail  transported by air.
section_title: Automated Package Processing System (APPS)
paragraphs: The Service’s next generation for sorting parcels and bundles of mail.  The  APPS will automate package processing by providing greater processing  capacity through automatic package induction, singulation, and address  recognition.  It uses a carousel-type cross belt sorter subsystem that  provides high-speed throughput.
section_title: Breakthrough Productivity Initiative (BPI)
paragraphs: A program that identifies best processing, retail, and delivery practices and  uses this information to standardize operational processes.
section_title: Bulk Mail
paragraphs: Mail that is rated for postage partly by weight and partly by the number of  pieces in the mailing. The term is generally used to refer to Standard Mail  (A).
section_title: Bulk Mail Center (BMC)
paragraphs: A highly mechanized mail processing plant that distributes Standard Mail in  piece and bulk form.
section_title: Business Mail Entry Unit (BMEU)
paragraphs: The area of a postal plant where mailers present bulk, presorted, and  permit mail for acceptance. The BMEU includes dedicated platform space,  office space, and a staging area on the workroom floor.
section_title: Collection Mail
paragraphs: Mail deposited into a collection box or lobby drop, as well as mail collected  by letter carriers on their delivery rounds.
section_title: Computerized Forwarding System
paragraphs: A centralized, computerized address label-generating operation that  performs address correction and forwards or returns undeliverable-as- addressed mail to customers.
section_title: Delivery
paragraphs: The act of taking mail from the post office to the customer. The mail is  taken to the customer’s business or residential delivery address or picked  up at a post office – whether post office box, window, or dock.
section_title: Delivery Bar Code Sorter (DBCS)
paragraphs: This machine is used for processing letters that are already barcoded.  DBCSs come in multiple configurations; most machines have between 190  and 220 sortation bins. The DBCS is used for outgoing processing,  incoming primary sortation, and Delivery Point Sequencing (DPS).
section_title: Delivery Point Sequencing
paragraphs: The process of arranging mail in delivery order for a particular carrier  route.
section_title: Delivery Unit
paragraphs: A post office, post office station, or post office branch that has mail  delivery functions.
section_title: Destinating Mail
paragraphs: Incoming mail arriving for its point of final delivery.
section_title: Destination Delivery Unit (DDU)
paragraphs: A customer service unit that processes mail for one or multiple ZIP codes  within its own associate office. The DDU may contain a limited amount of  automation equipment. The DDU generally provides mail delivery, bulk  mail acceptance, and performs actions related to all products and services  offered.
section_title: Detached Mail Unit
paragraphs: An area in a mailer’s plant where postal employees perform mail  verification, acceptance, dispatch, and other postal functions.
section_title: Dropshipping
paragraphs: Typically the movement of a mailer’s product on private (nonpostal)  transportation from the point of production to a postal plant located closer  to the destination of that product.
section_title: Dull Pass Rough Cull
paragraphs: This machine separates machinable mail into different mail streams.
section_title: Express Mail
paragraphs: A mail class that provides expedited delivery service for mailable matter  subject to certain standards. It is available in five basic domestic service  offerings (Same Day Airport Service, Custom Designed Service, Next Day  Service, Second Day Service, and Military Service). Express Mail  International Service is available between the United States and most  foreign countries. Express Mail is a Service trademark.
section_title: First-Class Mail
paragraphs: A class of mail that includes all matter wholly or partly in writing or  typewriting, all actual and personal correspondence, all bills and  statements of account, and all matter sealed or otherwise closed against  inspection. First-Class Mail comprises three subclasses: postcards, letters  and sealed parcels, and Priority Mail. Any mailable matter may be sent as  First-Class Mail. First-Class Mail is a Postal Service trademark.
section_title: Flat
paragraphs: A mailpiece that exceeds one of the dimensions for letter-size mail (11-1/2  inches long, 6-1/8 inches high, 1/4 inch thick) but that does not exceed the  maximum dimension for the mail processing category (15 inches long, 12  inches high, 3/4 inch thick). Dimensions are different for automation rate  flat-size mail eligibility. Flat-size mail may be unwrapped, sleeved,  wrapped, or enveloped.
section_title: Flat Sorting Machine (FSM)
paragraphs: A machine that mechanically sorts flats by ZIP Code.
section_title: Hub and Spoke Program (HASP)
paragraphs: For surface mail, primarily for 2-day committed mail. HASP includes a  central point (“hub”) where mail for a group of offices (“spokes”) can be  unloaded from a series of incoming trips, massed according to their  intended destination, and then sent on to that destination on another trip.  Savings are realized because each trip does not have to drive to each  individual office or spoke to drop off just a portion of its total load capacity.
A mail processing category of mailpieces, including cards, that do not  exceed any of the dimensions for letter-size mail (that is, 11-1/2 inches long,  6-1/8 inches high, 1/4 inch thick).
section_title: Letter Sorting Machine
paragraphs: A large mechanized machine that can sort letters into as many as 277 bins.  Operators physically read the address and then manually enter an  extraction code, via keyboard, based on their memory of the sort scheme  loaded into the machine’s computer software.
section_title: Low Cost Tray Sorter
paragraphs: A tray sorter used for inbound tray sorting operations and outbound  dispatch operations to reduce material handling workhours.
section_title: Mailer
paragraphs: An entity that prepares and/or presents a mailing to the Postal Service. In  some cases, a mailer is the agent for the actual owner of the mail.
section_title: Mailpiece
paragraphs: A single addressed article of mail, usually a letter, flat, card, or parcel.
section_title: Multiline Optical Character Reader
paragraphs: An optical character reader that reads and interprets more than one line of  the delivery address on a mailpiece.
section_title: Nonmachinable Outside
paragraphs: A parcel or mailpiece that, because of size, weight, or other characteristic,  cannot be sorted by mechanized mail processing equipment and must be  handled manually. The parcel is called an outside because it cannot be  placed in a sack or other mailing container.
section_title: Optical Character Reader (OCR)
paragraphs: An automated mail sorting machine that interprets the address information  on a letter-size mailpiece and sprays the corresponding ZIP Code  information onto the piece as a barcode. The OCR consists of a mail feed  unit, transport unit, stacker modules, computer with a control system,  video monitor, and printer.
section_title: Originating Mail
paragraphs: Outgoing mail and local mail that enter the mailstream—that is, the point of  origin—for mail processing and delivery.
section_title: Outgoing Mail
paragraphs: Mail sorted within a mail processing plant that is dispatched to another  plant for additional processing or delivery.
section_title: Package Services
paragraphs: A class of mail that comprises four subclasses: Bound Printed Matter,  Library Mail, Parcel Post, and Media Mail. There is no minimum weight  limit for Package Services.
section_title: Parcel
paragraphs: Mail that does not meet the mail processing category of letter-size mail or  flat-size mail. It is usually enclosed in a mailing container such as a carton.
section_title: Parcel Sorting Machine (PSM)
paragraphs: A large machine with an input station controlled by a computer that sorts  and discharges parcels from transport trays to primary and secondary  positions.
section_title: Periodicals
paragraphs: A class of mail consisting of magazines, newspapers, or other publications  formed of printed sheets that are issued at least 4 times a year at regular,  specified intervals (frequency) from a known office of publication.  Periodicals mailers must generally have a legitimate list of subscribers and  requesters.
section_title: Postal Automated Redirection System
paragraphs: A system designed to intercept and process undeliverable-as-addressed  mail using automated techniques.
section_title: Presorted Mail
paragraphs: A form of mail preparation, required to bypass certain postal operations, in  which the mailer groups pieces in a mailing by ZIP Code or by carrier route  or carrier walk sequence – or other Postal Service recommended  separation.
section_title: Priority Mail
paragraphs: First-Class Mail that weighs more than 13 ounces and, at the mailer’s  option, any other mail matter weighing 13 ounces or less. Priority Mail  provides expedited delivery. Any mailable matter may be sent as Priority  Mail. Priority Mail is a Postal Service trademark.
section_title: Priority Mail Processing Center (PMPC)
paragraphs: The core function of a Priority Mail Processing Center is to provide an  operational foundation capable of delivering consistent and reliable  Priority Mail service.
section_title: Processing and Distribution Center (P&DC)
paragraphs: A central mail plant that processes and dispatches part or all of both  incoming and outgoing mail for a designated service area. It also provides  instructions on the preparation of collection mail, dispatch schedules, and  sorting plan requirements to mailers. The plant is usually a sectional center  plant or a general mail plant, but it can also be a dedicated mail processing  plant without a station or branch.
section_title: Remote Encoding Center
paragraphs: A Postal Service unit that uses advanced technology to assign barcodes to  hand-addressed mailpieces physically located at a general mail plant. After  the mailpiece image is displayed on a computer terminal, an operator, who  is at the center, keys in the ZIP Code and the street address in order to  match this information with that in a database. This allows for the  imprinting of the barcode and automated mail processing at the general  mail plant.
section_title: Sack
paragraphs: A container generally used to transport flat-size mail, parcels, and loose  pack mail. It is made of sewn fabric (usually nylon, polyester, canvas, or  plastic with an opening at one end) and is closed with a draw cord and  fastener.
Sack Sorting Machine (SSM) A mechanized, operator-controlled machine similar to a parcel sorting  machine but of heavier construction, that sorts sacks of mail.
section_title: Service Standards
paragraphs: A stated goal for service achievement for each mail class.
section_title: Small Parcel and Bundle Sorter
paragraphs: A modular machine that sorts small parcels and packages or bundles of  letters and flats to 100 specific bins for either delivery or processing.
section_title: Singulator Scan Induction Unit (SSIU)
paragraphs: Equipment that automates the entry of barcoded parcels onto the  secondary parcel sorting machines at bulk mail centers. Packages first  enter a singulator area where they are aligned in single file and spaced, and  then sent through a dimensioning unit, which measures external  dimensions and weight. Next, parcels pass through an omni scan tunnel  where their barcodes are read. Finally, the parcel is inducted onto the  parcel sorting machine.
section_title: Standard Mail
paragraphs: A class of mail consisting of mailable matter that is not required to be  mailed as First-Class Mail or is not mailed as Periodicals.
section_title: Tray
paragraphs: A container used in postal plants to hold letters and First-Class Mail flats. It  is used as a basic unit of mail quantity for purposes of preparing mail to  qualify for discounted postage rates.
section_title: Tray Management System (TMS)
paragraphs: TMS uses tray identification, transport, storage, and process control  technologies to automate the movement and staging of trayed letter and  flat mail between most mail sortation operations.
section_title: Walk Sequence
paragraphs: The order in which a carrier delivers mail for a route. This order is required  for most carrier route presort mail.
section_title: Undeliverable-As-Addressed (UAA)
paragraphs: Mail that the Postal Service cannot deliver as addressed and must forward  to the addressee, return to the sender, or send to a mail recovery center.
Universal Transport System  A system that has the ability to process letter trays, flat tubs, sacks, parcels,  and bundles.
section_title: Comments from the U.S. Postal Service
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the person named above, Teresa Anderson, Tida Barakat,  Margaret Cigno, Collin Fallon, Kerry Lipsitz, Kathy Gilhooly, Brandon  Haller, and Jason Kelly made key contributions to this report.