U.S. Postal Service: Progress Made in Implementing Mail 	 
Processing Realignment Efforts, but Better Integration and	 
Performance Measurement Still Needed (26-JUL-07, GAO-07-1083T).  
                                                                 
GAO reported in 2005 on major changes in the mailing industry	 
that have reinforced the need for the U.S. Postal Service (USPS) 
to reduce costs and increase efficiency. To address these changes
and become more efficient, USPS is implementing initiatives aimed
at realigning its mail processing network. In a follow-up review,
GAO recently reported that USPS has made progress in implementing
these initiatives, yet challenges such as maintaining delivery	 
standards and addressing stakeholder and community resistance	 
remain. In July 2006, GAO also reported on USPS's progress in	 
improving delivery performance information. This testimony	 
describes (1) the changes that have affected USPS's processing	 
network, (2) GAO's concerns related to USPS's strategy for	 
realigning its mail processing network and implementing its area 
mail processing consolidations, and (3) GAO's concerns related to
USPS's progress in improving delivery performance information.	 
This testimony is based on prior GAO reports.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-1083T					        
    ACCNO:   A73388						        
  TITLE:     U.S. Postal Service: Progress Made in Implementing Mail  
Processing Realignment Efforts, but Better Integration and	 
Performance Measurement Still Needed				 
     DATE:   07/26/2007 
  SUBJECT:   Accountability					 
	     Federal agency reorganization			 
	     Performance measures				 
	     Postal facilities					 
	     Postal service					 
	     Program evaluation 				 
	     Reporting requirements				 
	     Standards						 
	     Strategic planning 				 
	     Mail processing operations 			 

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GAO-07-1083T

   

     * [1]Summary
     * [2]Several Major Changes Have Affected USPS's Mail Processing O
     * [3]Concerns Related to USPS's Strategy for Realigning Its Mail

          * [4]USPS's Strategy for Realigning Its Mail Processing Network i
          * [5]Mail Processing Realignment Efforts USPS Has Under Way Need
          * [6]Concerns with the AMP Consolidation Process

               * [7]Unclear Criteria Used in AMP Consolidation Decisions
               * [8]Inconsistent Data Calculations
               * [9]Limited Delivery Performance Measures
               * [10]Lack of Stakeholder and Public Input
               * [11]Revised AMP Guidelines and New Legislation Are
                 Addressing So

     * [12]Progress in Improving Delivery Performance Measures Has Been
     * [13]Contact and Acknowledgments
     * [14]GAO's Mission
     * [15]Obtaining Copies of GAO Reports and Testimony

          * [16]Order by Mail or Phone

     * [17]To Report Fraud, Waste, and Abuse in Federal Programs
     * [18]Congressional Relations
     * [19]Public Affairs

Testimony

Before the Subcommittee on Federal Workforce, Postal Service, and the
District of Columbia, Committee on Oversight and Government Reform, House
of Representatives

United States Government Accountability Office

GAO

For Release on Delivery
Expected at 2:00 p.m. EDT
Thursday, July 26, 2007

U.S. POSTAL SERVICE

Progress Made in Implementing Mail Processing Realignment Efforts, but
Better Integration and Performance Measurement Still Needed

Statement of Katherine Siggerud, Director
Physical Infrastructure Issues

GAO-07-1083T

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to participate in this oversight hearing for
the U.S. Postal Service (USPS). In April 2005, we issued a report^1 that
detailed the major changes that have affected USPS's mail processing and
transportation operations and evaluated USPS's strategy for realigning its
network to address these changes. We recently issued a follow-up report in
June 2007,^2 which focused on the initiatives USPS has implemented to
realign its network. We also issued a report^3 in July 2006 that discussed
our concerns with USPS's limited delivery performance information, which
is needed to evaluate how USPS's network realignment decisions affect the
quality of delivery service. As requested, my remarks today are based on
these previous GAO reports and will focus on (1) major changes affecting
USPS's mail processing operations that have prompted the need for network
realignment, (2) the concerns we raised in our 2005 and 2007 reports
related to USPS's strategy for realigning its mail processing network and
implementing its area mail processing consolidations, and (3) concerns we
raised in our 2006 report on USPS's progress in improving delivery
performance information.

Summary

As we reported in 2005, several major changes have affected USPS's mail
processing operations. These changes include the following:

           o A changing marketplace and shifts in how customers use the
           mail--USPS is experiencing a decline in First-Class Mail
           volume--which declined by almost 6 percent from fiscal years 2001
           through 2006--and has attributed this decline to how customers use
           the mail.
           o A change in the role of mailers--This is primarily due to the
           advent and evolution of USPS's worksharing discounts, which began
           in 1976. Postal worksharing activities generally involve mailers
           preparing, barcoding, sorting, or transporting mail to qualify for
           reduced postage rates.^4 These activities allow mail to bypass
           USPS mail processing and transportation operations.
			  
^1GAO, U.S. Postal Service: The Service's Strategy for Realigning Its Mail
Processing Infrastructure Lacks Clarity, Criteria, and Accountability,
[20]GAO-05-261 (Washington, D.C.: Apr. 8, 2005).

^2GAO, U.S. Postal Service: Mail Processing Realignment Efforts Under Way
Need Better Integration and Explanation, [21]GAO-07-717 (Washington, D.C.:
June 21, 2007).

^3GAO, U.S. Postal Service: Delivery Performance Standards, Measurement,
and Reporting Need Improvement, [22]GAO-06-733 (Washington, D.C.: July 27,
2006).
			  
           o The evolution of USPS's automated equipment and processing and
           transportation networks--USPS's use of manual and automated
           equipment and the related processing and transportation network
           have also evolved over time, resulting in an infrastructure
           network composed of plants that are markedly different from one
           another, which makes it difficult to standardize operations.
           o Shifts in national demographics--USPS facilities may not be
           optimally located due to shifts in demographics and changes in
           transportation. USPS has stated that a key challenge 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 a reasonable cost.

           These changes have created excess capacity in USPS's processing
           network (i.e., plants, machines, and transportation capacity) and
           have contributed to variations in productivity across USPS
           processing plants that impede efficiency gains. To address these
           changes and their impact, USPS, GAO, the USPS Inspector General,
           the President's Commission on the U.S. Postal Service, and the
           Postal Regulatory Commission (PRC) ^5 have all stated that USPS's
           processing network needs to be realigned.

           In our 2005 report, we concluded that USPS did not have answers to
           important questions about how it intended to realign its mail
           processing networks. This conclusion still holds true today. In
           that report, we evaluated USPS's strategy for realigning its
           processing network--Evolutionary Network Development (END), an
           evolutionary strategy developed by USPS to realign its processing
           operations--and found that this strategy

           o lacked clarity (since USPS announced its intent to realign, it
           has developed several different realignment strategies);
           o lacked criteria and processes for eliminating excess capacity in
           its network;
           o excluded stakeholder input from its decision-making processes;
           o was not sufficiently transparent and accountable; and
           o lacked performance measures for results.
			  
^4Key worksharing activities include (1) barcoding and preparing mail so
USPS 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 its destination entry or dropshipping.

^5The Postal Regulatory Commission was previously named the Postal Rate
Commission. Section 604 of the Postal Accountability and Enhancement Act
(Pub. L. No. 109-435), enacted on December 20, 2006, redesignated the
Postal Rate Commission as the Postal Regulatory Commission.

           We recommended that USPS establish a set of criteria for
           evaluating realignment decisions, develop a mechanism for
           informing stakeholders as decisions are made, and 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. We followed up on the actions USPS
           has taken related to these recommendations in our 2007 report and
           found that although USPS has taken some steps to improve its
           planning and evaluation processes, it still has not clarified the
           criteria it uses for selecting locations for potential area mail
           processing (AMP) consolidations and making decisions on whether or
           not to proceed with implementation.

           As we stated in our June 2007 report, currently, USPS is
           implementing several key initiatives that play central roles in
           network realignment--AMP consolidations, regional distribution
           center (RDCs) development, the Flats Sequencing System,^6 and
           surface and air network development--which are at different stages
           of implementation. Although we support USPS's efforts to
           facilitate the realignment of its processing network, we have some
           concerns about how USPS is implementing these initiatives. First,
           USPS still does not have answers to important questions about how
           it intends to realign its network. For example, in February 2006,
           USPS said that it was planning to develop a network of between 28
           and 100 RDCs that would serve as the foundation for its processing
           network. In June 2007, we reported that USPS is reconsidering this
           network and it is not clear what the future foundation of the
           processing network will be. Second, it is not clear how these
           initiatives are individually and collectively integrated or to
           what extent they are meeting USPS's realignment goals, which
           include

           o developing mail processing and transportation networks suited to
           current and future operational needs,

           o reducing inefficiency and redundancy,

           o making operations flexible, and

           o reducing postal costs.

^6Flat mail includes larger envelopes, catalogs, circulars, newspapers,
and magazines.

           USPS is making changes to its processing network with the aim of
           meeting these goals while maintaining current levels of service,
           but USPS has yet to develop measurable targets for achieving these
           goals. With no measurable targets, it is not apparent how much of
           an impact USPS's network realignment initiatives are making toward
           achieving these goals. Third, during our review of these
           initiatives, we also found several issues with AMP
           consolidations--the initiative that most clearly addresses USPS's
           goal of reducing excess machine capacity. These issues include
           USPS's unclear criteria for selecting facilities and deciding on
           AMP consolidations, the use of inconsistent data calculations,
           limited measures of the effect of changes on delivery performance,
           and a lack of appropriate stakeholder and public input when
           considering potential AMP consolidations.

           USPS is revising its procedural and communication guidelines for
           AMP consolidations to address some of these issues, but we
           continue to have some concerns, primarily with respect to
           integrating and measuring performance related to USPS's network
           realignment initiatives, communication procedures, and the
           transparency of its decision-making. To address these concerns, in
           our June 2007 report we recommended that the Postmaster General

           o strengthen the planning and accountability for USPS's
           realignment efforts by ensuring that the Facilities Plan required
           by the Postal Accountability and Enhancement Act explains the
           integration of realignment initiatives and establishes measurable
           targets to track USPS's progress in meeting realignment goals and
           o improve communication with stakeholders by modifying USPS's
           procedures to improve the quality of public notices and
           engagement, particularly those related to proposed AMP
           consolidations, and increase transparency in decision-making.

           We reported in 2006 on our concerns related to USPS's limited
           progress in improving its delivery performance information, which,
           as we reinforced in our 2007 report, is needed to evaluate the
           effects of its network realignment decisions. A key concern of
           some stakeholders who may be affected by USPS's realignment
           decisions is whether delivery service will be negatively affected.
           Our 2006 report detailed the limited scope of USPS's delivery
           performance measures, which cover less than one-fifth of the mail
           volume. We also reported on the impediments to progress and
           recommended that USPS take actions to provide clear management
           commitment and more effective collaboration with mailers to
           resolve the impediments to implementing delivery performance
           measurement and reporting for all major types of mail. Since our
           report was issued, Congress passed postal reform legislation that
           requires USPS to submit a plan to Congress describing its
           strategy, criteria, and processes for realigning its network and
           provide the PRC annual performance reporting for the speed and
           reliability of delivery of most types of mail. We believe that
           USPS's response to these statutory requirements is an opportunity
           to address the recommendations from our three reports.
			  
			  Several Major Changes Have Affected USPS's Mail Processing Operations
			  Prompting the Need for Network Realignment

           Several major changes have affected USPS's 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. Historically, USPS's business model was
           dependent on revenues from increasing mail volumes to help cover
           the costs of its expanding infrastructure. This model has proven
           more difficult to sustain because First-Class Mail volumes--which
           generate high revenue per piece--are declining. USPS 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. At the
           same time as declines in First-Class Mail are taking place,
           Standard Mail (primarily advertising mail) volumes are increasing.
           The trends for First-Class Mail and Standard Mail, which currently
           combine for about 95 percent of mail volumes and 80 percent of
           revenues, experienced a historical shift in fiscal year 2005. For
           the first time, the volume of Standard Mail exceeded that of
           First-Class Mail. This shift has financial implications because
           First-Class Mail generates the most revenue and is used to finance
           most of USPS's institutional (overhead) costs, while Standard Mail
           generates less revenue per piece. It takes about two pieces of
           Standard Mail to make the same contribution to institutional costs
           as one piece of First-Class Mail.

           The role of mailers has also changed in large part due to the
           advent of USPS's worksharing discounts in 1976 and the evolution
           of additional worksharing discounts in subsequent years. Postal
           worksharing activities generally involve mailers preparing,
           barcoding, sorting, or transporting mail to qualify for reduced
           postage rates. These activities allow mailers to bypass some USPS
           mail processing and transportation operations. Thus, for example,
           an activity called dropshipping allows the mailer a discount for
           bypassing the plant near where the sender of the mail is located
           and transporting the mail closer to its destination point.
           Worksharing contributes to excess capacity in USPS's operations
           because mail volumes bypass operations that occur early in USPS's
           processing network; in some cases, as with dropshipping, mail
           volumes bypass entire plants. Also, some plants have exclusively
           processed certain types of mail, which has driven up the cost per
           piece of those types of mail. In general, by law, each postal
           product must cover the costs attributable to its provision plus a
           reasonable contribution to cover 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.

           USPS's use of manual and automated equipment and the related
           processing and distribution network have also evolved over time,
           resulting in an infrastructure network composed of plants that are
           markedly different from one another. As a result, some plants
           cannot accommodate some types of 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. In 2005, USPS's mail processing and
           distribution infrastructure included plants that ranged in age
           from 2 to 72 years old and ranged in size from just over 400
           square feet to over 1.5 million square feet; have different
           layouts; serve different processing functions; and do not share
           the same amount and type of processing equipment.

           Additionally, USPS facilities may not be optimally located due to
           shifts in demographics and changes in transportation. Most USPS
           processing plants are located in eastern states--in areas that
           historically have had the largest population. During the 1990s,
           U.S. households continued moving West and South, with Nevada and
           Arizona ranking as the two fastest growing states in the nation.
           In 2005, we reported that the majority of USPS processing plants
           are located in states where household growth has not been as rapid
           as in others. USPS stated that the challenge it faces is to locate
           processing plants and employees within efficient reach of most of
           the population, while at the same time providing universal service
           at a reasonable cost. Furthermore, as a result of ongoing changes
           in transportation, most mail is now moved by highway and air, and
           some processing plants could be better located so that major
           highways and airports would be more easily accessible. In
           particular, changes in transportation occurred after the September
           11, 2001, terrorist attacks, when new federal aviation security
           restrictions prohibited the transportation of mail weighing more
           than 16 ounces on commercial passenger flights. As a result, the
           majority of the mail previously transported by commercial
           passenger air is now shipped by surface transportation or flown by
           FedEx.

           These major changes have led to variations in productivity and
           excess capacity in USPS's processing network, prompting the need
           for network realignment. Average productivity--total pieces
           processed per hour--varies among USPS's mail processing and
           distribution plants, which indicates that some plants are not
           processing mail as efficiently as others. USPS officials have
           attributed this variation to several factors, including size of
           plant as measured by workload, number of employees, plant layout,
           and use of nonstandardized processes. In our 2005 report, we found
           that none of these factors, in isolation, can explain the
           variations; rather, it seems that plants with low productivity
           exhibit a number of contributing factors.

           These major changes have also created excess capacity in USPS's
           processing network. According to USPS officials, declining mail
           volume, worksharing, and the evolution of mail-processing
           operations from manual to automated equipment have led to excess
           capacity. Excess capacity created by these trends can be
           categorized into different types, including the following:

           o excess machine hours, which occur when machines sit idle;
           o excess physical infrastructure, which occurs when more square
           footage is available for processing mail than is necessary (this
           may include entire plants);
           o excess transportation capacity, which occurs when trucks are run
           at less than full capacity; and
           o excess work hours, which occur when more work hours are used
           than are necessary for processing the mail.
			  
			  Concerns Related to USPS's Strategy for Realigning Its Mail Processing
			  Network and Implementing its Area Mail Processing Consolidations

           As we reported in 2005, and it continues to be the case today,
           important questions remain about how USPS intends to realign its
           mail processing network to meet its future needs because USPS does
           not have a comprehensive, transparent strategy for realigning its
           processing network. Since our 2005 report, USPS has been working
           on several key initiatives that play central roles in network
           realignment: AMP consolidations, RDC development, the Flats
           Sequencing System, and surface and air network development. In
           2007 we reported that USPS has made progress in implementing these
           initiatives, but we have some concerns related to the integration
           and results of these initiatives, particularly the AMP
           consolidations.
			  
			  USPS's Strategy for Realigning Its Mail Processing Network is Still
			  Unclear

           Our 2005 report concluded that USPS's strategy for realigning has
           not been clear because USPS has outlined several seemingly
           different strategies, none of which include criteria and processes
           for eliminating excess capacity, which may prolong inefficiencies.
           Also, we reported that USPS's strategy lacks sufficient
           transparency and accountability, excludes stakeholder input, and
           lacks performance measures for results. In 2007, we reported that
           while USPS has made some improvements, it still is not clear how
           USPS intends to realign its mail processing network. The RDC
           initiative, which USPS referred to as the foundation of its
           processing network, is one key area of USPS's network realignment
           that is unclear.

           In February 2006, USPS testified to the PRC that it would be
           undertaking an initiative to develop a network of RDCs to serve as
           the foundation of its processing network.^7 However, various
           developments have caused USPS to reexamine whether it will proceed
           with the RDC initiative. RDCs would serve as consolidation centers
           for mail of the same shape (i.e., letters, flats, or parcels),
           which would allow mailers to bring various classes of mail to one
           facility and facilitate the transportation of multiple mail
           classes on a single transportation network. When USPS first
           introduced the concept of RDCs to serve as the foundation of its
           processing network, it projected it would need between 28 and 100
           RDCs nationally.

           In February 2007, officials told us that they would be
           reevaluating processing and transportation network plans in light
           of the December 2006 Postal Accountability and Enhancement Act,
           the PRC opinion, and the planned deployment of new equipment to
           sort flats. In March 2007, USPS's Senior Vice President,
           Operations, told us that USPS is still determining the structure
           of its processing network foundation. He said that similar to the
           current network, the future network would be designed around
           USPS's processing and distribution centers, but how USPS will make
           determinations about these facilities appears largely uncertain.
			  
^7In February 2006 USPS, sought an advisory opinion from PRC on
anticipated changes in the application of current service standards that
may result from a systemwide review and realignment of its mail processing
and transportation networks, and PRC issued its advisory opinion in
December 2006.

           Mail Processing Realignment Efforts USPS Has Under Way Need Better
			  Integration and Measurable Targets

           USPS has developed initiatives to facilitate the realignment of
           its processing network, but without measurable targets for cost
           savings or benefits, it is not clear how these initiatives are
           meeting its END goals. The goals of USPS's END include (1)
           developing mail processing and transportation networks suited to
           current and future operational needs, (2) reducing inefficiency
           and redundancy, (3) making operations flexible, and, (4) reducing
           costs.

           The four major initiatives discussed in our June 2007 report are
           shown in Table 1.

Table 1: Status and Purpose of Central Realignment Initiatives

Source: GAO presentation of USPS data.

^aFlat mail includes larger envelopes, catalogs, circulars, newspapers,
and magazines.

USPS has established goals for its END infrastructure realignment and is
making changes to its processing network with the aim of meeting these
goals while still maintaining current levels of service. While GAO, PRC,
and the President's Commission have supported these goals, USPS has yet to
develop measurable targets for achieving them^8 It also is unclear how
USPS's realignment initiatives are integrated with each other, that is,
how the individual and collective costs and benefits of these initiatives
impact the overall goal of network realignment. Without measurable
targets, the impact of USPS's network realignment initiatives on achieving
these goals is not apparent. For example, USPS's Senior Vice President,
Operations, told us that there are no actual targets for cost savings in
network realignment but an indicator of success would be the
implementation of more AMP consolidations.

Concerns with the AMP Consolidation Process

We also raised several issues in our June 2007 report about the AMP
consolidations, in which certain mail-processing operations from multiple
plant locations are consolidated into fewer plant locations. AMP
consolidations are the initiative that most clearly addresses USPS's
reduction of excess machine capacity due to increased worksharing and
declining First-Class Mail volumes, yet the limited transparency in the
AMP consolidation process makes it unclear the extent to which this
initiative is meeting END goals. Many of the concerns about this lack of
transparency in the planning and evaluation processes are primarily
related to the criteria USPS used in selecting operations at certain
facilities as opportunities for AMP consolidations, the lack of consistent
data calculations used in the decision making and evaluation processes,
the lack of the AMP consolidation's evaluation of impact on service
performance, and the lack of appropriate stakeholder and public input.
USPS is taking steps to address these areas by revising its AMP
consolidation guidelines, but concerns still exist.

AMP consolidations are intended to reduce costs and increase efficiency by
reducing excess machine capacity. One way to reduce excess capacity is to
consolidate mail-processing operations from one or more plants into
another plant(s). This increases the amount of mail processed on machines
and decreases the work hours used in mail processing by reducing the
number of staffed machines. By decreasing the number of machines used to
process mail, AMP consolidations can reduce postal costs.

^8In July 2003, the President's Commission provided recommendations on
ensuring efficient USPS operations, while minimizing financial exposure to
the American taxpayer. These recommendations supported USPS's realignment
of its processing network.

In 2005 and 2006, USPS considered 57 studies of opportunities for AMP
consolidations, but has decided not to implement 34 of them. See the
appendix for more detail on the status of these AMP consolidations. As
summarized in table 2, in 2005, USPS considered 11 consolidations, of
which it implemented 9, postponed 1, and did not implement 1.

Table 2: Status of AMP Consolidations Studies in 2005 and 2006

Source: GAO presentation of USPS data.

^aUSPS originally approved 11 AMP consolidations in 2005 and subsequently
decided not to implement 1.

^bDecisions not to implement proposed AMP consolidations include 5
consolidations USPS placed on indefinite hold.

In 2006 USPS initiated 46 AMP consolidation studies. As of May 2007, it
had implemented 1 consolidation, approved but not yet implemented 1
consolidation, decided not to implement 33 studies (5 placed on indefinite
hold), was continuing to consider 10 consolidations, and was still
completing the study of 1 consolidation. USPS officials explained that
area officials decided to place 5 AMP consolidation studies on indefinite
hold because of existing delivery service issues in the areas served by
these facilities, which the officials wished to resolve before considering
implementation. USPS officials said that the remaining 28 of the 33
decisions not to implement the proposed consolidations were made because,
for example, studies had found that implementation would result in
negligible savings or degrade existing service. USPS anticipates it will
make final decisions for the remaining feasibility studies still under
consideration this summer.

  Unclear Criteria Used in AMP Consolidation Decisions

The criteria USPS uses for both selecting locations that may serve as
potential opportunities for AMP consolidations, and deciding whether to
implement a consolidation are unclear. Therefore, USPS may not be
targeting the best opportunities for consolidation. In 2005, USPS used
modeling software that identified 139 sets of locations where operations
could potentially be consolidated. Of these, 46 sets of locations were
deemed feasible for initiating AMP consolidation studies in 2006; and of
these sets, 2 have been approved so far for AMP consolidations, and 33
have been either rejected or put on hold. In its December 2006 advisory
opinion, PRC questioned not the model itself, but rather the effectiveness
of the model's use in identifying opportunities for AMP consolidations.
PRC's concerns are related to the fact that the END model does not rely
completely on location-specific data in identifying opportunities for
consolidation. Instead, the model uses some location-specific data in
combination with national productivity averages, which may not adequately
target the best opportunities for consolidations. The USPS Inspector
General also recently reported on USPS's selection process for AMP
consolidations.

In addition to having unclear criteria in selecting locations with
potential for consolidating mail processing operations, USPS does not have
specific criteria--such as definitive thresholds or principles--for
deciding whether or not to implement an AMP consolidation after the study
has been completed. USPS's Senior Vice President, Operations, told us that
USPS is considering prioritizing consolidations that are expected to
achieve $1 million or more in cost savings annually.

  Inconsistent Data Calculations

We also reported that USPS did not use consistent data calculations in
determining the impact and cost savings of these consolidations.
Inconsistency in data calculations in the feasibility studies may limit
USPS's ability to identify all of the foreseeable impacts of the
consolidations and to accurately determine the expected cost savings of
the AMP consolidations. The current AMP guidelines do not prescribe
standardized sources for the data used in completing the worksheets, nor
is there a standardized methodology for calculating some data in the
worksheets.

AMP consolidation guidelines require semiannual and annual post
implementation reviews (PIR) of AMP consolidations, which ensure
management's accountability for implementing an AMP plan. USPS's post
implementation review process essentially replicates the AMP consolidation
study process and compares the estimated annual savings submitted in the
approved AMP consolidation study to the actual savings after 6 months,
which is then projected to annualized savings. PIRs are completed by local
managers, approved by area officials, and subject to final review by
headquarters officials.

We found that in some cases, reviewing officials in USPS headquarters made
significant corrections and changes to the draft PIRs that were submitted
for their review, resulting in revised projected annualized savings that
were closer to the original estimates prepared for the AMP consolidation
studies. As shown in table 3, the sum of estimated annual savings in the
nine AMP consolidations approved in 2005, as provided in the AMP study
documents, was about $28 million.^9 According to the initial draft PIRs
for these nine consolidations prepared by USPS officials at the local
level 6 months after implementation, the annualized savings would be about
$19 million. During the review of these PIRs by USPS headquarters, this
sum was revised to about $28 million.

Table 3: Semiannual Post Implementation Projected Annualized Savings
Versus Estimated Annualized Savings in AMP Studies Approved in 2005

Source: GAO presentation of USPS data.

Note: The headquarters review of the PIRs has been completed for only
three of the nine PIRs, and additional revisions to the projected
annualized savings may be made, but USPS officials provided us with the
most recent data available from their ongoing reviews.

While the differences in the savings from the AMP studies' estimated
annualized savings and the revised PIR projected annualized savings are
generally small, in the interim, drafts of the PIRs showed different
projections before USPS headquarters officials revised them based on their
review. USPS's Senior Vice President, Operations, told us that the
headquarters review has shown that when PIRs have not been finalized, they
do not always account for all of the actual savings achieved by the AMP
consolidation. Another USPS official attributed the difference in the
amounts reported in some PIRs and the revised projected annualized savings
to unexpected events (e.g., changes in cost elements, such as work hour
rates) and differences in the methodologies used by the individuals
calculating the data impact of the results.

^9USPS headquarters officials also revised the AMP studies' estimated
annual savings for two consolidations after the consolidations were
approved to eliminate duplicate savings, which reduced the AMP studies'
total estimated annual savings by $2.8 million. We did not include this
revised AMP estimate in the table because we wanted all the data in the
table to be from consistent sources.

  Limited Delivery Performance Measures

The AMP consolidation process does not evaluate potential impacts to
delivery performance; therefore, USPS cannot determine the actual impact
of AMP consolidations on delivery service. As we reported in 2006, USPS
does not measure and report its delivery performance for most types of
mail, and less than one-fifth of total mail volume is measured.^10 While
USPS is taking steps toward developing increased delivery performance
measurements, limited mechanisms are currently in place to determine how
AMP consolidations may potentially impact delivery performance or to
evaluate the actual impact after implementation. USPS has systems in place
to measure delivery performance for some of its First-Class Mail and
segments of other types of mail. However, the External First-Class
Measurement System (EXFC) is limited to single-piece First-Class Mail
deposited in collection boxes in selected areas of the country (see fig.
1). Thus, some areas included in potential AMP consolidations may not be
covered by the EXFC system; therefore, USPS would not have delivery
performance information for these areas.

^10 [23]GAO-06-733 .

Figure 1: Geographic Coverage of Delivery Performance Measurement for
First-Class Mail Deposited in Collection Boxes as Measured by EXFC

Note: Areas covered by EXFC are shaded. Boundaries within states are for
3-digit ZIP Code areas.

While the AMP consolidation study does not take delivery performance into
account, it does review impacts on service standards, which are USPS's
official standards for how long it should take to process different
classes of mail between the location where USPS receives the mail
(originating ZIP codes) and its final destination (destinating ZIP codes).
The AMP consolidation study considers whether standards for different
classes of mail will be upgraded (a decrease in the time it takes mail to
travel between certain ZIP codes) or downgraded (an increase in the time
it takes mail to travel between certain ZIP codes) with implementation of
the consolidation. Considering these service standards provides some
insight into the potential impact of the AMP consolidation on USPS's
ability to meet its internal standards; however, without service
performance data or the ability to measure the AMP consolidation's impacts
on delivery performance, it is unclear how USPS can accurately determine
the cost and service impact of its AMP consolidations.

  Lack of Stakeholder and Public Input

USPS's AMP communication practices do not ensure appropriate stakeholder
engagement in realignment decisions. More specifically, AMP consolidation
communication processes (1) do not provide clear and useful notification
to stakeholders, (2) do not provide for meaningful public input and lack
transparency into the AMP decision-making process, and (3) provide limited
information to the public after USPS makes AMP consolidation decisions. A
town hall meeting is the only formal requirement for public input during
the AMP consolidation process. Stakeholders and others have criticized the
timing of the meeting, saying it occurs too late in the process, after
USPS has already made major decisions.

AMP consolidations have been taking place since the late 1960s, and USPS
established AMP consolidation guidelines in 1979. However, until 2006,
USPS has had no statutory requirement to contact the public (other than
USPS employees) concerning the consolidation of its operations, unless the
consolidation would result in a retail facility closure. In 1995, prior to
the statutory requirement, USPS established communication guidance
requiring the notification of stakeholders when an AMP consolidation is
implemented, and in 2005 this guidance was updated to require notification
when AMP consolidation studies are initiated. AMP consolidation
notification letters sent to stakeholders were not meaningful and provided
little detail. The notification letters we reviewed were largely form
letters, did not simply and clearly state the type of change or changes
being studied, and provided no range of possible outcomes for the public
to understand. Letters contained jargon with terms that may not be
familiar to the public. For example, they stated that USPS was studying
the facility's "total mail processing," "originating/destinating mail
processing," or "originating mail processing." Also, the letters did not
provide the name of the facility to which operations would be moved so
that mailers affected by the change could plan their operations
accordingly. Furthermore, USPS did not explain to stakeholders that
"consolidating both originating and destinating mail" meant USPS was
considering closing the facility, whereas consolidating "either
destinating or originating mail" meant potential changes only to internal
mail processing operations.

AMP guidance requires USPS to "fully consider" both service and "other
impacts on the community." Since 2006, USPS has included a requirement in
its AMP guidance for a town hall meeting to provide a forum to obtain
public input, but there are flaws with that requirement. As noted in our
report, USPS held five town hall meetings that were open to the public and
has held another since our report was issued. USPS provided little
information about the study prior to the meetings--a series of bullets was
posted on a USPS Web site several days prior to the meetings, and USPS
neither publicized an agenda for the meetings nor employed a neutral party
to facilitate them. According to the guidance, additional information in
the form of briefing slides and a video screening, is not made available
to attendees until a meeting occurs. Then, a USPS official will prepare a
summary document after the meeting that is to be forwarded to USPS
headquarters. Only after the meeting, do the stakeholders and the public
have an opportunity to draft and submit comments to USPS.^11

Additionally, we found that these meetings occur too late in the decision
making process. Public meetings were held after the AMP consolidation
studies were forwarded to USPS headquarters, and after USPS had gathered
and analyzed most of the data, including the data on customer service
impacts. USPS officials could not specifically explain how stakeholder and
public input was used in reaching AMP consolidation decisions.
Furthermore, USPS does not seek input from stakeholders or the
public--including input regarding impact on delivery service--when
evaluating completed AMP consolidations. However, USPS officials told us
that as a matter of practice, USPS provides its employee organizations
with copies of approved AMP studies and completed AMP evaluations. It is
unclear how the information collected at, or subsequent to, the meetings,
factors into consolidation decisions.

  Revised AMP Guidelines and New Legislation Are Addressing Some of These
  Issues, but Concerns Remain

Although USPS is revising its AMP consolidation procedural and
communication guidelines to address some of these issues, we continue to
have some concerns. Drafts of these revised procedural guidelines indicate
that the new process will include several changes aimed at standardizing
the AMP consolidation process and the data calculations used in studying
potential consolidations. The use of consistent data sources should
alleviate some of the delays that currently affect the AMP consolidation
process. USPS officials stated that the revised guidelines are currently
scheduled to be released this summer.^12 However, we have concerns about
the draft guidance because it does not

^11For the five meetings that were held, USPS afforded stakeholders and
the public 5 days to provide comments. USPS has since increased the
comment period to 15 days.

           o address USPS's limited use of facility-specific data in
           identifying facilities to consider for consolidation,
           o identify the criteria USPS uses when deciding to approve an AMP
           consolidation, or
           o address USPS's limited ability to measure delivery performance.

           While USPS is updating its communication guidance--the AMP
           Consolidation Communication Plan and Toolkit--its proposed
           improvements would neither substantively improve information
           provided to stakeholders and the public, nor improve the public
           input process. Proposed improvements would help clarify which
           stakeholders USPS notifies but would not improve the content of
           the notifications. Furthermore, the draft AMP consolidation
           guidelines would not provide for transparency into the AMP
           consolidation decision-making process to the extent that Congress
           has encouraged and others have recommended or advised by, for
           example, holding the public meeting earlier or explaining how USPS
           uses public input.

           To address these concerns, in our recent report we made the
           following two recommendations to the Postmaster General:

                        1. Strengthen the planning and accountability for
                        USPS's realignment efforts by ensuring that the
                        Facilities Plan required by the Postal Accountability
                        and Enhancement Act^13 includes

           o a discussion of how the various initiatives that will be used in
           rationalizing the postal facilities network will be integrated
           with each other and
           o the establishment of measurable targets USPS plans on meeting
           for the anticipated cost savings and benefits associated with
           network rationalization, and the timeline for implementation.
			  
^12USPS plans on providing a draft of the guidelines to employee unions
for their review. Unions are allowed 60 to 90 days for review and comment.

^13The Postal Accountability and Enhancement Act requires USPS to develop
a Facilities Plan that includes a strategy for how USPS intends to
rationalize the postal facilities network and remove excess processing
capacity and space from the network and the process for engaging
policymakers and the public in related decisions.

                        2. Improve the way in which USPS communicates its
                        realignment plans and proposals with stakeholders,
                        particularly with regard to proposed AMP
                        consolidations, by taking action to

           o improve public notice by clarifying notification letters,
           o improve public engagement by holding the public meeting earlier
           in the study, and
           o increase transparency by updating AMP guidelines to explain how
           public input is considered in the decision-making process.

           In its response to our recent report, USPS generally agreed with
           our findings and stated that it will be taking measures to address
           our recommendations. USPS commented that its compliance with the
           Postal Accountability and Enhancement Act will satisfy our
           recommendations for the Postmaster General to ensure that the
           required Facilities Plan addresses the integration and performance
           measurement issues we identified. We agree that the required
           Facilities Plan provides an opportunity for USPS to more fully
           discuss the integration of its realignment initiatives and
           establish measurable targets for meeting the cost savings and
           benefits of network rationalization.

           Additionally, USPS agreed to improve public notice by providing
           clear and simple language detailing the type of change being
           considered and forecasting changes to customer services, as well
           as by soliciting public input at the initiation of the feasibility
           study. The public notice will outline a formal comment period and
           inform stakeholders that comments will be addressed later at a
           public meeting. USPS agreed to improve public engagement by
           holding the public meeting earlier in the AMP process. We agree
           that this change in timing will improve USPS's public engagement
           process as well as the usefulness of public input in AMP
           consolidation decisions. The agenda and briefing slides will be
           posted on [24]www.usps.com in advance of the public meeting. USPS
           also agreed to increase the transparency of the AMP process by
           adding information to the AMP guidelines on how USPS uses public
           input in the decision-making process. Public input information
           will be appended to the AMP proposal provided to the Area Vice
           President for a decision. The input will be weighed against the
           proposal's overall impact on cost savings and service. If the AMP
           proposal is approved by the Area Vice President, it will be
           forwarded along with the public input information to the Senior
           Vice President, Operations. The final report will be posted on
           [25]www.usps.com and will summarize the impact of the approved
           proposals on savings, service, and other stakeholder concerns.
			  
			  Progress in Improving Delivery Performance Measures Has Been Slow
			  and Inadequate

           Our July 2006 report found that USPS does not measure and report
           its delivery performance for most types of mail, and less than
           one-fifth of total mail volume is measured (see table 4). We also
           reported that USPS has made inadequate progress in modernizing its
           delivery standards and in implementing delivery performance
           measurement for all major types of mail. Our report discussed
           multiple impediments that have contributed to USPS's slow progress
           toward implementing representative measures of delivery
           performance for all major types of mail. The most important
           impediment was the lack of management commitment and effective
           collaboration with the mailing industry to follow up on
           recommendations for improvement and to resolve issues between USPS
           and mailers. Additional impediments included technological
           limitations, limited mailer participation in providing information
           needed to facilitate performance measurement, data quality
           deficiencies, and costs. USPS's limited progress has left major
           gaps in each of these areas, despite numerous recommendations for
           improvement that have been made in these areas over the years,
           including those by USPS-mailer task forces and working groups, as
           well as some USPS initiatives to develop delivery performance
           measurement. We recommended that USPS take actions to facilitate
           greater progress in developing complete delivery performance
           information.

           Table 4: USPS Measurement and Reporting of Timely Delivery
           Performance

           Source: GAO analysis of U.S. Postal Service information.

           Note: Timely delivery performance is measured based on comparing
           the time for USPS to deliver mail against USPS's delivery
           standards. Reporting includes material on USPS's Web site. For
           purposes of this table, First-Class Mail does not include Priority
           Mail. Volume and revenue data are for fiscal year 2005 and do not
           add up to 100 percent because they do not include some small and
           unrelated types of mail.

           ^aNo representative measure of delivery performance exists for
           this mail. Some mailers pay an additional fee to obtain data on
           the progress of their mail through USPS's mail processing system.
           However, these data are not representative, cover less than 2
           percent of total mail volume, and do not include data on the date
           of delivery.

           While USPS is taking steps toward developing increased delivery
           performance measurements, limited mechanisms are currently in
           place to determine how AMP consolidations may impact delivery
           performance or to evaluate the actual impact after implementation.
           A key concern of some stakeholders who may be affected by USPS's
           realignment decisions is whether their delivery service will be
           negatively affected. The Postal Accountability and Enhancement Act
           enacted in December 2006 provides additional opportunities for
           USPS to address the concerns we raised. The act requires USPS to
           establish modern delivery service standards by December 20, 2007,
           and implement annual reporting of the speed and reliability for
           most types of mail (market-dominant products^14) according to
           specific requirements to be established by the PRC. In addition,
           the act requires USPS to annually report on the quality of service
           it provides for each of these products. USPS is in the process of
           consulting with mailers, PRC, and the public on how this
           modernized system of service standards and measures should be
           developed. We believe this process of dialogue and obtaining a
           broad cross-section of input is a good start and we look forward
           to new USPS and PRC regulations in this area, which are expected
           later this year.

           Mr. Chairman, this concludes my prepared statement. I would be
           pleased to respond to any questions that you or the Members of the
           Subcommittee may have.
			  
^14The Postal Accountability and Enhancement Act defines market-dominant
products to include: First-Class Mail letters and sealed parcels,
First-Class Mail cards, periodicals, Standard Mail, single-piece parcel
post, media mail, bound printed matter, library mail, special services,
and single-piece international mail.

           Contact and Acknowledgments

           For further information regarding this statement, please contact
           Katherine Siggerud, Director, Physical Infrastructure Issues, at
           (202) 512-2834 or at [26][email protected] . Individuals making
           key contributions to this statement included Teresa Anderson, Tida
           Barakat, Tonnye Conner-White, Kathy Gilhooly, Kenneth John, Taylor
           Matheson, and Margaret McDavid.
			  
			  Appendix I: Status of USPS 2005 and 2006 AMP Consolidations
			  
			  Status of AMP Consolidations Approved In 2005 (as of May 2007)

           Source: GAO presentation of USPS data.
			  
			  Status of 46 AMP Consolidations Initiated in 2006 (as of May 2007)
			  
			  Source: GAO presentation of USPS data.
			  
			  Note: This table includes the facilities involved in proposed
           consolidations, both the facility losing operations and the facility
           gaining operations.

(542123)

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www.gao.gov/cgi-bin/getrpt? [33]GAO-07-1083T .

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Highlights of [34]GAO-07-1083T , a testimony before the Subcommittee on
Federal Workforce, Postal Service, and the District of Columbia, Committee
on Oversight and Government Reform, House of Representatives

July 26, 2007

U.S. POSTAL SERVICE

Progress Made in Implementing Mail Processing Realignment Efforts, but
Better Integration and Performance Measurement Still Needed

GAO reported in 2005 on major changes in the mailing industry that have
reinforced the need for the U.S. Postal Service (USPS) to reduce costs and
increase efficiency. To address these changes and become more efficient,
USPS is implementing initiatives aimed at realigning its mail processing
network. In a follow-up review, GAO recently reported that USPS has made
progress in implementing these initiatives, yet challenges such as
maintaining delivery standards and addressing stakeholder and community
resistance remain. In July 2006, GAO also reported on USPS's progress in
improving delivery performance information. This testimony describes (1)
the changes that have affected USPS's processing network, (2) GAO's
concerns related to USPS's strategy for realigning its mail processing
network and implementing its area mail processing consolidations, and (3)
GAO's concerns related to USPS's progress in improving delivery
performance information. This testimony is based on prior GAO reports.

[35]What GAO Recommends

GAO made recommendations to USPS to enhance the planning, accountability,
and public communications related to its realignment efforts and to
improve its delivery performance measures. USPS's response to the
statutory requirements enacted in December 2006 is an opportunity to
address GAO's recommendations.

Several major changes have affected USPS's mail processing operations,
including marketplace changes, declining First-Class Mail volume,
increased competition, increased mail processing by mailers, automated
operations, and population shifts. These changes have led to excess
capacity in USPS's mail processing network and variations in productivity
among plants.

GAO's 2005 report concluded that USPS's strategy for realigning its mail
processing network lacked clarity, sufficient transparency and
accountability, excluded stakeholder input, and lacked performance
measures for results. Since then, USPS has developed several initiatives
that are at varying stages of development to address these issues and
major changes with an overall goal of reducing costs while maintaining
service. In 2007, GAO reported that while USPS has made progress in
implementing its realignment initiatives, (1) USPS still did not have
answers to important questions about how it intended to realign its
network, (2) it remains unclear how various USPS initiatives are
individually and collectively contributing to achieving its goals, and (3)
the area mail processing (AMP) consolidation initiative, to which USPS
attributes most of its progress in reducing excess machine capacity, still
presents significant issues. These issues include unclear criteria used in
selecting potential AMP consolidations, inconsistent data calculations,
limited measures of the effects of changes on delivery performance, and a
lack of appropriate stakeholder and public input. USPS is developing new
policies to address some of these issues. Nevertheless, questions about
USPS's selection criteria continue as USPS has decided not to implement 34
of the 57 potential AMP consolidations it considered in 2005 and 2006 as
shown in the table below. With limited data on the effects of changes,
USPS cannot consider actual delivery performance in making consolidation
decisions or in evaluating results.

Status of AMP Consolidation Studies in 2005 and 2006

Source: GAO presentation of USPS data.

GAO reported in 2006 that USPS does not measure and report its delivery
performance for most types of mail and that its progress to improve
delivery performance information has been slow and inadequate despite
numerous USPS and mailer efforts. Postal reform legislation enacted in
December 2006 requires USPS to submit a plan to Congress describing its
strategy, criteria, and processes for realigning its network and provide
performance measures for most types of mail. USPS is preparing its
response to these requirements.

References

Visible links
  20. http://www.gao.gov/cgi-bin/getrpt?GAO-05-261
  21. http://www.gao.gov/cgi-bin/getrpt?GAO-07-717
  22. http://www.gao.gov/cgi-bin/getrpt?GAO-06-733
  23. http://www.gao.gov/cgi-bin/getrpt?GAO-06-733
  24. http://www.usps.com/
  25. http://www.usps.com/
  26. mailto:[email protected]
  27. http://www.gao.gov/
  28. http://www.gao.gov/
  29. http://www.gao.gov/fraudnet/fraudnet.htm
  30. mailto:[email protected]
  31. mailto:[email protected]
  32. mailto:[email protected]
  33. http://www.gao.gov/cgi-bin/getrpt?GAO-07-xxxT
  34. http://www.gao.gov/cgi-bin/getrpt?GAO-07-xxxT
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