U.S. Postal Service: Mail Processing Network Initiatives Progressing, and Guidance for Consolidating Area Mail Processing Operations Being Followed
Published: 2010-06-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Deteriorating financial conditions and declining mail volume have reinforced the need for the U.S. Postal Service (USPS) to increase operational efficiency and reduce expenses in its mail processing network. This network consists of interdependent functions in nearly 600 facilities. USPS developed several initiatives to reduce costs and increase efficiency; however, moving forward on some initiatives has been challenging because of the complexities involved in consolidating operations. In response to a conference report directive, GAO assessed (1) the overall status and results of USPS's efforts to realign its mail processing network and (2) the extent to which USPS has consistently followed its guidance and applied these criteria in reviewing Area Mail Processing (AMP) proposals for consolidation since the beginning of fiscal year 2009. To conduct this assessment, GAO reviewed USPS's Network Plan, area mail processing consolidation guidance and proposals as well as other documents; compared USPS's actions related to consolidation of area mail processing facilities with its guidance, and interviewed officials from USPS, the USPS Office of Inspector General, and employee organizations. GAO provided USPS with a draft of this report for comment. In response, USPS provided technical comments that were incorporated where appropriate.
section_title: What GAO Found
paragraphs: USPS has realigned parts of its mail processing network since the beginning of fiscal year 2009 and continues to seek additional opportunities to achieve its goal of creating an efficient and flexible network and realize cost savings. Specifically, USPS: (1) eliminated all functions of the Airport Mail Centers, closed 9 of these facilities, and now uses the remaining 12 for other purposes, resulting in a realized cost savings of about $12.2 million in fiscal year 2009; (2) reorganized the functions of the 21 Bulk Mail Centers into newly developed Network Distribution Centers, resulting in a realized cost savings of about $17.7 million in fiscal year 2009; and (3) implemented 23 proposals to consolidate AMP operations and facilities and approved another 6 AMP consolidation proposals. USPS estimated an annual cost savings of about $98.5 million for the 29 approved and implemented AMP proposals. Additionally, USPS officials stated that they plan to integrate the Surface Transfer Center functions into the Network Distribution Center network to further eliminate redundancy in transporting mail. USPS has developed specific program targets for the ongoing reorganization efforts of the Network Distribution Centers and estimated a cost savings of about $233.8 million for fiscal years 2010 and 2011 from reduction in work hours and transportation costs. On the basis of GAO's analysis of 32 AMP proposals that were implemented, approved, or not approved since the beginning of fiscal year 2009, USPS has followed its realignment guidance by completing each step of the process and consistently applying its criteria in its reviews. GAO's analysis found that it took about 6 months on average--a month more than USPS's target of 5 months--to complete the review process from initiating an AMP proposal to making a decision. USPS officials noted the importance of the AMP decisions and the need to sometimes take longer than what the guidance suggests to ensure the correct decision. GAO also found that USPS consistently notified stakeholders when key steps of the AMP process were completed, such as when an AMP proposal was initiated, or public meetings were held. For each of the AMP proposals that GAO reviewed, USPS also consistently evaluated its four criteria related to AMP consolidations: (1) impacts on the service standards for all classes of mail, (2) issues important to local customers, (3) impacts to USPS staffing, and (4) savings and costs associated with moving mail processing operations.

section_title: Letter
paragraphs: While the U.S. Postal Service (USPS) generated $68.1 billion in revenue in  fiscal year 2009, deteriorating financial conditions and declining mail  volume have reinforced the need to increase operational efficiency and  reduce expenses in its mail processing network. The network consists of  interdependent functions and operations in nearly 600 facilities with  various equipment that sorts mail and prepares it for transportation and  delivery. From fiscal years 2007 through 2009, the economic downturn and  changing uses of the mail contributed to decreasing USPS mail volumes of  36 billion pieces (about 17 percent), which amounted to a loss of $12  billion. During that time, USPS also eliminated about $1.3 billion in FY  2008 and $6 billion in FY 2009 in operating expenses through actions such  as instituting a nationwide hiring freeze, cutting work hours, and halting  construction of new postal facilities. Most recently, total mail volume for  the first quarter of fiscal year 2010 was down almost 4.5 billion pieces—a  decrease of almost 9 percent over last year—and USPS does not expect  total mail volume to return to its former level when the economy recovers  from the recent downturn.
USPS has made realigning its mail processing network an ongoing effort  and has developed several initiatives to reduce costs and increase  efficiency. One such initiative, Area Mail Processing (AMP), was designed  to consolidate operations at facilities with excess machine capacity to  improve operational efficiency and service. However, moving forward on  the AMP initiative has been challenging because of the complexities  involved in consolidating operations, as well as stakeholder resistance to  consolidating operations and closing facilities. In 2005 and 2007, we issued  reports that evaluated USPS’s network plans and included  recommendations for improvement. In 2008, we reported on the progress  USPS had made toward implementing our previous recommendations on  realigning its mail processing network. This report responds to a directive  in a conference report for GAO to report to the House and Senate  Committees on Appropriations and assesses (1) the overall status and  results of USPS’s efforts to realign its mail processing network and (2) the  extent to which the USPS has consistently followed its guidance and  applied these criteria in reviewing its AMP facilities for consolidation  since the beginning of fiscal year 2009.
To determine the status and results of USPS’s efforts to realign its mail  processing network, we reviewed the USPS Office of Inspector General  (OIG) January 2010 report on network initiatives, USPS’s updated 2009  Network Plan, other USPS documents, and prior GAO reports. We also  interviewed officials from USPS and its OIG to discuss overall progress in  USPS’s mail processing initiatives. To assess the extent to which USPS has  consistently followed its guidance and applied criteria in consolidating its  AMP operations and facilities since the beginning of fiscal year 2009, we  reviewed USPS’s AMP Handbook PO-408 and its updated December 2009  AMP Communication Plan. We focused on the AMP initiative because its  total number of facilities and mail processing operations are considerably  larger and more extensive than the operations of USPS’s other network  initiatives. We reviewed files maintained in USPS headquarters for 32 AMP  proposals that were approved, implemented, or not approved from  October 2008 to March 2010 to determine whether the USPS had  consistently followed its established process and criteria in reviewing  AMP proposals for consolidation. We did not include AMP proposals that  were terminated or put on hold since they did not fully go through the  process. We collected key data from the AMP files maintained in USPS  headquarters and analyzed the extent to which USPS followed the  decision-making phase of the process—that is, the period from when a  study of the potential for consolidation is initiated to when the final  decision is made as to whether a consolidation will occur. We also  determined whether USPS achieved its timeliness goal for completing the  decision-making process in 5 months, as established in the AMP Handbook  PO-408. It was outside the scope of this work to assess the timeliness of  the interim steps of the process that are completed by local and regional  management. We also interviewed representatives from the American  Postal Workers Union and National Mail Handlers Union to obtain their  perspective on the AMP process. We conducted this performance audit  from March 2010 to June 2010, in accordance with generally accepted  government auditing standards. Those standards require that we plan and  perform the audit to obtain sufficient, appropriate evidence to provide a  reasonable basis for our findings and conclusions based on our audit  objectives. We believe that the evidence obtained provides a reasonable  basis for our findings and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: USPS’s mail processing network consists of multiple facilities with  different functions, as shown in a simplified version of this complex  network in figure 1. USPS can receive mail into its processing network  from different sources such as mail carriers, post offices, and mailing  companies. Once USPS receives mail from the public and commercial  entities, it processes and distributes the mail on automated equipment that  cancels stamps and sorts bar coded mail. Once mail distribution has been  completed by other operations, the mail is transported between  processing and distribution facilities. Depending on the mail shape and  classification, USPS processes the mail through different types of facilities  that perform various functions. While mail is processed mainly through  these facilities, mail processing operations also occur in other facilities,  such as at annexes that are temporary facilities used as overflow for mail  processing.
In its June 2008 Network Plan, USPS determined that it will reexamine its  mail processing network on an ongoing basis given changes in mail  volume and outlined several initiatives to improve management of its mail  processing operations, retail operations, and workforce to increase  efficiency and reduce costs. With regard to its mail processing operations  specifically, USPS identified three major initiatives to improve efficiency:  (1) closing Airport Mail Center (AMC) operations, (2) transforming the  Bulk Mail Center (BMC) network, and (3) consolidating AMP operations.  USPS’s Network Plan also included criteria for evaluating decisions, the  three most important of which were cost, service, and capacity. In  September 2008, we reported that USPS took steps to address our prior  recommendations to strengthen planning and accountability for its  network initiatives, which was important as USPS began implementing  them. However, we also found limited information on performance  targets or on the costs and savings attributable to USPS’s various mail  processing network initiatives.
In the case of consolidating AMP operations, USPS revised its guidance on  the process for AMP consolidations in March 2008. The revised guidance  included key steps and time frames associated with them, as well as  criteria to consider when making a decision to consolidate operations. The  AMP Handbook does not provide guidance regarding how to identify  potential opportunities for consolidation. In January 2010, the USPS OIG  recommended that the Vice President of Network Operations develop and  document specific criteria to identify consolidation opportunities, and  USPS management agreed with this recommendation. In December 2009,  USPS also updated the AMP Communication Plan, which supplements the  AMP guidelines and provides specific guidance on communicating with  stakeholders.
section_title: USPS Has Realigned Part of Its Mail Processing Network and Has Estimated Cost Savings
paragraphs: USPS has realigned parts of its mail processing network and continues to  seek additional opportunities to achieve its goal of creating an efficient  and flexible network. For fiscal year 2009, USPS realized a cost savings of  almost $30 million from eliminating all AMC operating functions and  closing nine of these facilities and reorganizing the functions of the BMC  to the Network Distribution Centers (NDC). Table 1 shows the status of  USPS’s three major processing network initiatives intended to lower costs  and achieve savings by reducing excess capacity and fuel consumption.
Specific steps taken on the three major mail processing network initiatives  are as follows:    Elimination of AMC operating functions. Of its three major network  initiatives, USPS has taken the most action by eliminating the AMC  function and closing 9 AMC facilities. In the past decade, USPS has closed  68 of 80 AMC facilities. Located on airport property, AMC facilities  primarily processed mail to expedite its transfer, to and from, up to 55  different commercial passenger airlines. Over time, USPS reduced the  number of commercial airlines transporting mail from 55 to 7 and, from  2001 to 2007, the volume of mail transported by commercial airlines  decreased by over 87 percent. At the same time, USPS contracted with air  freight carriers to transport most of the mail requiring air transfer. In  response, many AMC facilities made use of the available processing space  by taking on additional processing functions typically handled by local  processing and distribution centers (P&DCs), such as carrier and retail  operations. In 2006, in an effort to eliminate redundancy and reduce costs,  USPS began transferring functions performed at AMCs to nearby P&DCs  or outsourcing these operations and, in September 2008, we reported that  USPS estimated a targeted total savings of $117 million for closing these  AMC facilities. Since our 2008 report, USPS has closed 9 AMC facilities,  avoiding an estimated $12.2 million in costs. It has also revised the total  cost savings to $113 million resulting from eliminating the AMC function  and closing facilities, from fiscal year 2007 to fiscal year 2009. USPS  officials told us that they plan to reclassify the 12 remaining facilities and  determine whether some of them can be closed.
Reorganization of BMC functions into NDC Network. USPS has  reorganized the functions of its 21 BMCs into an NDC network with  expanded functions that more efficiently use long-haul transportation and  better align work hours with workload, according to the 2009 Updated  Network Plan. Before the reorganization, all BMCs performed the same  functions of processing local, destinating, and originating mail (e.g.,  Standard Mail®, Periodicals, and Package Services). In fiscal year 2009,  USPS reorganized the BMC network, including renaming the facilities as  NDC, to reflect the type of operations that are occurring at the facilities,  according to USPS officials. The NDC network is divided into three tiers of  facilities with different distribution and processing roles:   Tier 1 NDC facilities process local and destinating mail;    Tier 2 facilities process local, destinating, and originating mail; and    Tier 3 facilities handle Tier 2 functions and consolidate less-than- truckload volumes of mail from Tier 2 facilities.
As a result of the reorganization, USPS reduced the number of facilities  processing originating mail from 21 to 10; the remaining 11 facilities  continue to process local and destinating mail.
According to officials, USPS completed the reorganization of the BMC  functions to NDC in March 2010 and plans to further integrate other mail  processing operations to NDC. USPS realized a cost savings of about $17.7  million for fiscal year 2009, with a projected cost savings of about $233.8  million from additional reorganization in fiscal years 2010 and 2011.  According to officials, USPS also plans to integrate its Surface Transfer  Center (STC) functions into the NDC network to further eliminate  redundancy and move all mail traveling the same route through the same  facilities. USPS officials told us they are currently identifying and  assessing opportunities for consolidating STC functions into the NDC  network; however, USPS has not established a definitive timeline as to  when the functions of the STC are to be integrated into the NDC network  because such integration depends on future mail volumes, space  requirements and space availability, and necessary equipment.
Consolidation of AMP operations and facilities. As shown in table 1,  USPS has continued to initiate, review, and make decisions on AMP  proposals to consolidate its operations and facilities. AMP proposals are  intended to reduce costs and increase efficiency by making better use of  excess capacity or underused resources, primarily at USPS’s P&DC  facilities; the AMP proposals consist of consolidating all originating,  destinating, or both types of operations, from one mail processing facility  that downsizes its mail processing operations to other facilities nearby  that gains the processing operations. While local and regional USPS  management is responsible for conducting a feasibility study and  developing an AMP proposal, USPS headquarters approves or disapproves  the AMP proposal. Upon an approval from USPS headquarters, local and  regional USPS management implements the consolidation of processing  operations identified in an AMP proposal. According to USPS officials, the  AMP initiative is an ongoing effort to identify opportunities to achieve  efficiencies and, as such, USPS has not developed a program target for  annual savings from AMP consolidations. As of March 2010, USPS was  studying or reviewing 24 additional AMP proposals. (See app. I for a list of  the AMP proposals under review.)
section_title: USPS Has Followed Its Guidance and Consistently Applied Criteria in Consolidating Its AMP Facilities
subsections: section_title: USPS Has Followed Its Process for Consolidating Area Mail Facilities
paragraphs: On the basis of our analysis of 32 AMP proposals that were implemented,  approved, or not approved since October 2008, USPS has followed the key  steps in the AMP process. (See app. I for a list of the AMP proposals we  reviewed.) As shown in figure 2, USPS has developed key steps for the  AMP process, and it has established an overall goal of making an AMP  decision within 5 months of the study being initiated. Our analysis found  that USPS completed each step of the AMP process. It took about 6  months on average to complete the review process from initiating an AMP  proposal to making a decision on 27 AMP proposals we analyzed.
As shown in figure 3, 4 of the 27 AMP proposals we reviewed were  completed in less than 5 months, while others took longer because of  various factors, such as resolving conflicting interests from stakeholders  and staffing issues. According to USPS officials, the time frames are goals  to ensure the process moves forward, but USPS will take the time  necessary to ensure that any issues that arise from an AMP proposal are  resolved and appropriate decisions are made, even if doing so means going  beyond the targeted 5-month time frame. For example, while USPS  headquarters completed its review in June 2009 of consolidating the  Dallas, TX, P&DC into the North Texas P&DC, the AMP proposal was not  approved until December 2009 partially because the OIG was concurrently  reviewing the AMP proposal in response to a congressional request. Many  of the interim steps in the process conducted by the local and regional  management also have time frames associated with them, such as studying  the feasibility of an AMP proposal within a 2-month period. However,  according to officials, USPS does not centrally track all the dates  associated with the interim steps in the process because reviewing AMP  proposals is an ongoing, iterative process with some steps occurring  concurrently among local and regional USPS management and  headquarters.
An important part of the process is notifying and communicating with  stakeholders, and USPS completed these steps as called for in its  guidance. USPS is required to notify stakeholders, including employees,  employee organizations, appropriate individuals at various levels of  government, local mailers, community organizations, and the local media,  as to when a feasibility study is initiated and when a final decision is made  on the AMP proposal. According to its guidance, USPS must also provide  stakeholders with available information about any service changes that  may be affected from the proposed AMP consolidation and give ample  opportunities for stakeholders to provide input on the AMP proposals.  USPS is also required to conduct a public meeting after the local USPS  management completes and forwards the feasibility study to regional and  headquarters management for their review. We reported in 2008 that USPS  had improved communication with stakeholders with regard to AMP  proposals. In our analysis, we found that USPS consistently notified the  stakeholders when a feasibility study was initiated and when a final  decision was made; we also found that USPS consistently held public  meetings and summarized public input for each AMP proposal we  reviewed. Representatives of the postal unions we spoke with also  commented that the USPS has been following the process and  communicating with them and that the local union representatives  generally attended the public meetings and were involved with the  process.
The last step in the AMP process is completion of two postimplementation  reviews to assess the results of the consolidation. USPS has completed  two reviews of the 32 AMP proposals we reviewed and is in the process of  completing five more. The postimplementation reviews are intended to  evaluate and measure the actual results of consolidation decisions,  including realized savings in work hours, transportation, maintenance, and  facility costs. In the first postimplementation review of the consolidation  of the Kansas City P&DC in Kansas into the Kansas City P&DC in Missouri,  USPS identified cost savings of about $22.3 million after the  consolidation—$13 million more than its original projected savings of $9.3  million. USPS officials commented that several factors unrelated to the  consolidation, such as the use of in-house maintenance employees rather  than outsourced labor for facility projects and incentives for retirement in  the fall of 2009, contributed to the larger than expected savings. Similarly,  USPS identified cost savings of about $6.3 million in the first  postimplementation review of the Canton P&DC consolidation with the  Akron P&DC in Ohio—$4.1 million more than its original projected savings  of $2.2 million. According to USPS officials, the original projections were  made based on expected savings resulting from the consolidation. For  both postimplementation reviews, additional savings have been realized in  part because mail volume has continued to decline resulting in further  reductions in work hours and transportation costs.
section_title: USPS Has Consistently Considered Its Criteria in the Decision-Making Process
paragraphs: Based on our analysis of 32 AMP proposals that USPS had decided on  since October 2008, USPS consistently considered the criteria in its  guidance when making its decisions. According to the AMP guidance,  USPS must consider the following four criteria:  impacts on the service standards for all classes of mail, issues important to local customers, impacts to USPS staffing, and   savings and costs associated with moving mail processing operations.
We also found that USPS has standardized its AMP data sources and  analytical methodologies to achieve more consistent analysis when  evaluating the criteria during the decision-making process. In addition, the  OIG independently reviews data and the criteria USPS has used to validate  the business cases for some AMP proposals. For instance, the OIG  validated the business case for some of the AMP proposals we reviewed,  including the consolidations of operations at Dallas P&DC into North  Texas P&DC in Texas and New Castle processing and distribution facility  (P&DF) into Pittsburgh P&DC in Pennsylvania. Additionally, the OIG  concurred with the business decisions for consolidating mail processing  operations at the Canton P&DC with the Akron P&DC in Ohio and  Lakeland P&DC and Manasota P&DC with the Tampa P&DC in Florida.  While USPS consistently evaluated these criteria, a stakeholder we spoke  with commented that USPS does not provide a complete set of data it uses  to make its decisions. Although USPS is not required to provide complete  data that are used to consider AMP proposals under the AMP guidance,  the stakeholder believed that more data transparency is needed to permit  validation of USPS’s AMP decisions. According to USPS officials and USPS  guidance, AMP proposals contain commercially sensitive information, and  public disclosure of the information could cause competitive harm to  USPS. Accordingly, sensitive data contained in AMP proposals is redacted.
For the proposals we reviewed, we found that USPS assessed the impact  that a consolidation would have on the service standards for all classes of  mail and considered issues important to local customers. Two of the  AMP proposals we reviewed—the consolidation of operations at Mansfield  P&DF into Akron P&DC in Ohio and Zanesville Post Office into Columbus  P&DC in Ohio—were not approved due to a potential downgrade in the  delivery services for First-Class Mail®, despite potential cost savings for  consolidating those facilities. In other instances, the AMP proposal was  approved even though a downgrade in service for a particular class of mail  was identified, such as Package Services, because an upgrade in delivery  services of other mail classes was also identified, such as First-Class  Mail®. According to USPS officials, it is the overall net effect of changes in  delivery services that are considered in the decision-making process. In  the case of considering issues important to local customers, USPS  assessed whether the AMP proposal would impact customer service, such  as any changes in mail pickup times, hours for business mail acceptance,  and hours of retail operations. In many of the AMP proposals we reviewed,  USPS forecasted that there would be no adverse impact on local customer  service. USPS also forecasted that many of the retail hours at bulk mail  entry units covered in the AMP proposals would not be changed.
The impact that an AMP proposal would have on USPS staffing and  estimating savings and costs associated with the consolidation are also  important criteria in the AMP decision process. When considering the  impact on staffing, USPS examined and estimated the potential number of  positions that would be reduced or transferred to gaining facilities. This is  a reduction in the number of positions that are allotted to a facility and not  necessarily a loss of employees. Employees, who are impacted by the  consolidation, are given positions in the gaining facility, or other facilities,  in accordance to their respective collective bargaining agreements. USPS  estimated a total reduction of 1,263 allotted positions for the AMPs we  reviewed. In estimating potential costs and savings, USPS assessed work  hour savings from staffing changes, savings associated with transportation  and maintenance, as well as savings associated with space and leasing  facilities. USPS also examined one-time costs associated with relocating  staff, moving mail processing equipment, and changing facilities. If overall  estimated cost savings were not identified, then the AMP proposal would  not proceed. For example, while cost savings were identified in the AMP  proposal to consolidate operations at Hattiesburg Customer Service Mail  Processing Center with Gulfport P&DF in Mississippi, the proposal was  not approved because one-time costs associated with moving mail  processing equipment were not identified, and thus, the estimated total  annual savings were insufficient. USPS estimated a total annualized cost  savings of about $98.5 million for the 29 approved and implemented AMP  proposals we reviewed.
section_title: USPS Implementation of 2005 Recommendation
paragraphs: In 2005, we reported that because USPS did not have criteria to consider,  or a process to follow, when making mail processing consolidation  decisions, it was not clear whether the decisions would be made in a  manner that is fair to all stakeholders or that is efficient and effective. As  such, we recommended that USPS establish a set of criteria for evaluating  consolidation decisions, develop a process for implementing these  decisions that includes evaluating and measuring the results, and develop  a mechanism for informing stakeholders as decisions are made. In 2008,  we reported that USPS had made progress on implementing our prior  recommendations: USPS established criteria for evaluating consolidation  decisions, developed a process for evaluating and measuring the results of  its AMP decisions, modified its AMP Communication Plan to improve  public notification, engagement, and transparency, and clarified its  process for addressing public comments. As stated earlier, we found that  USPS followed its AMP process and consistently applied its criteria for  evaluating AMP proposals that we reviewed.
section_title: Agency Comments
paragraphs: We provided a draft of this report to USPS for official review and  comment. In response, USPS provided technical comments that we  incorporated where appropriate.
We are sending copies of this report to the Postmaster General,  appropriate congressional committees, and other interested parties. The  report also is available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff members have any questions concerning this report,  please contact me at (202) 512-2834 or herrp@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made major contributions to  this report are listed in appendix II.
section_title: Appendix I: Area Mail Processing Proposals
paragraphs: Table 2 below lists Area Mail Processing (AMP) proposals under review by  USPS, while Table 3 lists AMP proposals that we reviewed.
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Maria Edelstein, Assistant  Director; Colin Fallon; Brandon Haller; Jennifer Kim; Jaclyn Nelson; and  Crystal Wesco made key contributions to this report.