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. 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.) 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. 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. 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. 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. Table 2 below lists Area Mail Processing (AMP) proposals under review by USPS, while Table 3 lists AMP proposals that we reviewed. 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.

Summary: 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. 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.