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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