Postal Service: Planned Benefits of Iowa Automated Mail Facility Not
Realized (Letter Report, 04/08/94, GAO/GGD-94-78).

Automation at the Waterloo, Iowa, mail processing facility did not yield
financial savings as the Postal Service had planned, nor did it improve
productivity and delivery service.  After the consolidation of mail
operations in Mason City and Waterloo, mail processing workhours
declined as expected in Mason City, but the workhour increase in
Waterloo was larger than anticipated, and the combined hours for both
facilities rose sharply.  Despite the introduction of automation
equipment, labor productivity declined. Transportation costs, instead of
decreasing as planned, increased because of equipment upgrades and route
changes.  Although local overnight service in Mason City was maintained,
some locations were no longer scheduled to receive overnight mail
delivery, and the percentage of mail delivered on time to other
overnight locations fell.  Contrary to Postal Service guidelines,
officials have not reviews the consolidations to determine whether their
goals were attained.  GAO believes that the Service should do such
reviews to determine if consolidations in rural areas benefit the
Service and its customers.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-94-78
     TITLE:  Postal Service: Planned Benefits of Iowa Automated Mail 
             Facility Not Realized
      DATE:  04/08/94
   SUBJECT:  Postal service
             Mail transportation operations
             Mail delivery problems
             Productivity
             Postal facilities
             Regional planning
             Cost control
             Federal agency reorganization
             Centralization
IDENTIFIER:  Waterloo (IA)
             Mason City (IA)
             Mankato (MN)
             Albert Lea (MN)
             Blue Earth (MN)
             Decorah (IA)
             
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Cover
================================================================ COVER


Report to the Honorable
Charles E.  Grassley, U.S.  Senate

April 1994

POSTAL SERVICE - PLANNED BENEFITS
OF IOWA AUTOMATED MAIL FACILITY
NOT REALIZED

GAO/GGD-94-78

Iowa Automated Mail Facility


Abbreviations
=============================================================== ABBREV


Letter
=============================================================== LETTER


B-255880

April 8, 1994

The Honorable Charles E.  Grassley
United States Senate

Dear Senator Grassley: 

This report responds to your request that we determine whether the
introduction of automated mail processing in Waterloo, IA, saved
money and improved delivery service.  You were concerned about
complaints from postal customers that sorting efficiency and delivery
slowed down after operations in Mason City and Waterloo, IA, were
consolidated into one automated center in Waterloo in August 1991. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Automation at the Waterloo center did not produce financial savings
as the Postal Service planned, or improve productivity and delivery
service.  After the consolidation, mail processing workhours declined
as expected in Mason City, but the workhour increase in Waterloo was
larger than anticipated, and the combined hours for both facilities
increased sharply.  Despite the introduction of automated equipment,
labor productivity went down.  Transportation costs, instead of
decreasing as planned, increased because of equipment upgrades and
route changes.  Although local overnight service in Mason City was
maintained, some locations were no longer scheduled to receive
overnight mail delivery, and the percentage of mail delivered on time
to other overnight locations fell. 

Contrary to the Postal Service's guidelines, officials have not
performed postimplementation reviews of consolidations to determine
if their goals were achieved.  We believe that the Service should
conduct such reviews to determine if consolidations in rural areas
benefit the Service and its customers. 


   BACKGROUND
------------------------------------------------------------ Letter :2

To take advantage of advances in mail processing technology developed
to increase productivity, the Postal Service has been mechanizing and
automating mail processing operations for over 20 years.  The greater
productivity of automated mail sorting equipment permits the Service
to consolidate the processing operations of two or more facilities
into one area mail processing facility.  Area mail processing
consolidations apply only to mail processing and distribution, and
not to customer service operations.  The affected offices maintained
their regular window service, and postal officials expected the
consolidation changes would not affect postal customers.  The
Service's guidelines say that these types of consolidations should
save money and provide the same or better service. 

Consolidations started in urban areas, but in recent years expanded
to rural areas.  From 1989 through 1992, Postal Service headquarters
approved 75 area mail processing proposals.  Most of these proposals
affected rural areas.  One such proposal included northeastern Iowa
and southern Minnesota and was implemented in August 1991.  Manual
and mechanized mail processing and distribution operations in Mason
City and Waterloo, IA, were combined into an automated facility in
Waterloo (see app.  I for a map and populations of the affected
communities).  The Postal Service projected that the consolidation
would save about $266,000 the first year, primarily through a
reduction in workhours needed for mail processing.  Savings of about
$3,900 in transportation costs were also expected for the first year. 
The area mail processing plan stated that mail delivery service would
not be affected by the consolidation, and that processing operations
located at Decorah, IA, might be transferred to the Waterloo facility
at an unspecified date. 

Shortly after the Waterloo facility began operations, customer
complaints were received alleging degraded service.  These complaints
were similar to others that have reached Congress over the past few
years from customers in North Dakota, South Dakota, Maryland,
Pennsylvania, and West Virginia. 


      CONSOLIDATIONS IN RURAL
      AREAS HAVE MORE IMPACT
---------------------------------------------------------- Letter :2.1

In urban areas, mail processing consolidations are implemented
without the same impact on personnel, transportation, and customer
service that can occur in sparsely populated rural areas where
consolidations involve small communities many miles apart. 
Accordingly, the awareness of customers in these areas to postal
operations and their reactions to consolidations tend to be more
pronounced.  For example, we recently reported\1 that rural area
customers were sensitive to changes in the overnight mail service
they customarily received, which was important to their business and
economic development.  Specific ways in which rural area mail
services differ from urban areas include the following: 

  Small volumes of mail are important to some local communities; for
     example, a medical clinic in one community may depend on a
     single laboratory in another community to analyze its medical
     specimens, and the timely flow of mail between the two is
     imperative. 

  Changes in postal service are more noticeable and have more impact
     because of the smaller economic bases. 

  Because of the smaller numbers of customers in rural areas, cutting
     off overnight service to one area and providing overnight
     service to another may force businesses to find new customers in
     the improved service area to replace ones who were lost. 

  Transportation is critical in rural overnight service areas because
     of greater distances and the limited availability of alternate
     routes when adverse weather or accidents occur. 

Also, in urban areas the impact of consolidation on postal personnel
transferred from one facility to another may mean a change in
commuting routes, whereas in rural areas personnel may need to move
their families to another community.  Transferring even a few postal
employees, with their relatively high wages, can have a noticeable
effect in small rural communities. 

Because of such concerns, the Postal Service announced in October
1992 that it was suspending further action on unapproved area mail
processing proposals.  This suspension is expected to last until the
Service completes a reexamination of the area mail processing concept
and its current guidelines to ensure that they support the Service's
priorities. 


--------------------
\1 Service Impact of South Dakota Mail Facility Not Fully Recognized
(GAO/GGD-93-62, Feb.  25, 1993). 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :3

Our objectives were to determine whether automated area mail
processing in Waterloo, IA, (1) saved money and (2) changed mail
service.  To achieve our objectives, we

  examined current Postal Service guidelines on developing and
     implementing area mail processing;

  examined the 1991 Mason City to Waterloo area mail processing plan;

  analyzed Mason City and Waterloo financial reports, personnel
     reports, and weekly management reports from the first seven
     4-week accounting periods of the 1991 fiscal year (prior to the
     consolidation) and the same periods in fiscal year 1993, the
     latest information available at the time of our analysis;

  compared various indicators of cost and productivity before and
     after automated area mail processing was implemented;

  discussed the planning, implementation, and postimplementation
     status of the area mail processing operation with Postal Service
     officials in Mason City and Waterloo and at the Des Moines
     management center, where the consolidation plan was prepared;
     and

  conducted a mail service test within the Mason City service area to
     determine if overnight mail service had been maintained. 

The mailing was not a statistical sample, which would have required
representation within the sample of all mailing points and delivery
addresses in the Mason City area.  Because this was not feasible, we
conducted a mailing that we believe indicated whether local Mason
City mail was being delivered overnight.  The test consisted of 406
letters mailed over a 3-day period from 16 locations in the Mason
City overnight delivery area to a central address in Mason City. 

We did our work from February 1993 through September 1994 in
accordance with generally accepted government auditing standards. 


   WATERLOO CONSOLIDATION HAS NOT
   ACHIEVED ANTICIPATED SAVINGS
------------------------------------------------------------ Letter :4

The plan for the area mail processing facility projected that at
least $266,000 would be saved during the first year of operation,
with about 90 percent of the savings resulting from decreases in mail
processing labor and supervision costs in Mason City.  The remainder
of the savings would result from lower transportation costs.  Rather
than declining, however, costs were significantly higher in 1992 and
1993, after the consolidation.  Factors that contributed to the
failure to achieve the anticipated savings were (1) mail processing
workhour savings in Mason City were more than offset by increased
workhours in Waterloo; (2) productivity, measured in number of pieces
of mail processed per workhour, decreased rather than increased in
both Mason City and Waterloo; and (3) transportation equipment was
upgraded and routes were added. 


      WORKHOUR DECREASES IN MASON
      CITY WERE MORE THAN OFFSET
      BY INCREASES IN WATERLOO
---------------------------------------------------------- Letter :4.1

The Mason City Post Office transferred most mail sorting operations
and seven employees to Waterloo, resulting in a decrease in mail
processing workhours in Mason City, as anticipated.  Between the
first seven postal accounting periods (28 weeks) of fiscal year 1991,
before the start of consolidated operations, and the same period in
1993, mail processing workhours in Mason City decreased by 46
percent. 

On the other hand, workhours for the corresponding period of time in
Waterloo increased by 55 percent, resulting in a net increase in
workhours of 24 percent for the operations of both facilities. 
Workhours for manual sorting were expected to decrease as a result of
using automated equipment.  However, manual workhours increased at
the same ratio as other processing hours.  (See fig.  1). 

   Figure 1:  Automation Has Not
   Reduced Manual Workhours

   (See figure in printed
   edition.)

Source:  Postal Service National Workhour Reporting System. 

Overtime also contributed to the increased cost.  During the same
periods in 1991 and 1993, it doubled from 4 to 8 percent of workhours
in Mason City, and from 10 to 20 percent in Waterloo. 


      PRODUCTIVITY DECLINED IN
      BOTH FACILITIES AFTER THE
      START OF CONSOLIDATED
      OPERATIONS
---------------------------------------------------------- Letter :4.2

In spite of automation, mail processing productivity\2 declined for
Mason City and Waterloo between 1991 and 1993.  Specifically, it
dropped 11 percent, from 674 pieces of mail processed per workhour in
1991 to 603 pieces of mail per workhour during the same 7 accounting
periods in 1993.  (See fig.  2). 

   Figure 2:  Productivity
   Declined After Automation

   (See figure in printed
   edition.)

Source:  Postal Service Workhour and Volume Reporting Systems. 

We do not know specifically what caused productivity to decline or
why there were no labor savings in overall manual sorting.  It should
be kept in mind that although automated sorting of bar coded letters
is considerably faster than mechanical or manual sorting, a great
deal of the mail still cannot be read or barcoded by automated
equipment.  Nationally, nearly half of the workhours devoted to mail
processing are still spent on mechanical and manual sorting. 
Waterloo has also experienced roughly this same proportion in
mechanical and manual sorting.  One effect of automation is that the
handling of mail that automated equipment is unable to read adds to
workhours.  Operations necessary to support two separate sorting
operations, automated and manual, increased workhours in Waterloo and
apparently contributed to the drop in productivity. 

Nevertheless, we believe that because automated equipment is designed
to improve speed and efficiency, operations in Waterloo should have
produced savings in manual workhours and an improvement in
productivity. 


--------------------
\2 This is calculated by dividing the number of first-handled pieces
of mail by the total mail processing workhours needed to sort and
distribute the mail. 


      TRANSPORTATION COSTS
      INCREASED AFTER
      CONSOLIDATION
---------------------------------------------------------- Letter :4.3

The consolidation plan projected transportation savings of $3,946,
including buy-out of existing contracts, in the first year of
operation and annual savings of $36,675 the following year.  However,
the consolidation necessitated larger trucks and new and expanded
routes that were not contemplated in the plan.  These additions
resulted in a $38,491 annual increase in transportation costs by
1993. 


      REQUIRED POSTIMPLEMENTATION
      REVIEWS FOR SAVINGS WERE NOT
      DONE
---------------------------------------------------------- Letter :4.4

Postal Service guidelines in effect at the time the Waterloo
consolidation was approved required field office managers to review
consolidated operations to determine whether the anticipated savings
were achieved.  When significant deviations from a plan are
discovered, officials are required to conduct an investigation to
determine causes and make recommendations to capture projected
savings. 

A postimplementation review of the Waterloo facility was not done. 
After operations were combined in Waterloo, officials still tracked
workhours at the two locations separately and assumed that savings
had been achieved because hours decreased in Mason City.  They added
that they believed Postal Service management did not enforce the
postimplementation review requirement. 

Because of the relevance of postimplementation reviews to assessing
whether Postal Service consolidation plans were achieved, we inquired
at the headquarters level on the status of such reviews for other
current consolidations.  Officials in headquarters said that to their
knowledge reviews were not done, and they had no record of any being
done.  They also said that postimplementation reviews are not
required in the draft revision of the guidelines. 


   EFFECT OF THE CONSOLIDATION ON
   SERVICE WAS MIXED
------------------------------------------------------------ Letter :5

Most mail service in the area remained unchanged as the consolidation
plan had anticipated.  However, some overnight service was adversely
affected, at least temporarily, and adjustments of truck routes
degraded some scheduled service and improved it elsewhere. 

In our test mailing from within the Mason City overnight delivery
area to a central address in Mason City, 96 percent of the letters
were delivered overnight, approximating the Service's goal of 95
percent.  On the basis of our discussions with local postal
officials, it appears that poor service reported initially by Mason
City customers may have been due in part to equipment and start-up
problems in Waterloo.  We also noted that overnight delivery to Cedar
Rapids dropped below the Postal Service standard during the period of
our analysis.  According to Postal Service data, the overnight
delivery rate from Mason City to Cedar Rapids decreased from 94
percent in the first quarter of fiscal year 1991 to 83 percent in the
first quarter of 1993.  However, it increased to the preconsolidation
level during the following two quarters. 

When the consolidation was implemented, Mason City lost its scheduled
overnight service to Mankato, Albert Lea, and Blue Earth, MN
(combined population 54,000; see app.  I).  Conversely, by adding a
truck route from Waterloo to Fort Dodge, IA, the Service preserved
scheduled overnight service between Mason City and Fort Dodge
(population 26,000) and also improved scheduled service from Waterloo
to Fort Dodge from 2 days to overnight.  Postal Service officials
maintained that the change from overnight to 2-day service to
southern Minnesota was not due to the consolidation, but to a
nationwide revision of delivery service commitments that had been
adopted earlier.  Nevertheless, we associated the service change with
the consolidation because (1) the two coincided and (2) the extra
distance and travel time from Mason City to Waterloo and back through
Mason City to Minnesota, as required by the consolidation, precluded
overnight service. 

Postal headquarters officials told us that the new area mail
processing guidelines will include requirements to more carefully
assess and track the impact on the communities affected by area mail
processing consolidations. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

The planned benefits of the Mason City to Waterloo mail processing
consolidation, chiefly labor cost savings, were not achieved.  After
the consolidation, mail processing workhours and costs at the
consolidated facility significantly exceeded preconsolidation levels
at Mason City and Waterloo.  Labor productivity declined in spite of
the shift to automation. 

The exact reasons why savings were not achieved are not known. 
Although the Postal Service's written guidelines require that
consolidations be reviewed to determine if projected savings were
realized, this was not done.  Nor apparently was this done for any
recent consolidation.  The failure to make postimplementation reviews
leaves the Service without reliable information on the
cost-effectiveness of these consolidations.  In the Waterloo area
case, it leaves the Service without assurance that the effects of the
prospective transfer of operations from Decorah, IA, would be
beneficial. 

Most of the consolidated area served by Waterloo continued to receive
overnight service to the same locations as before the consolidation. 
However, some areas experienced a temporary degradation in overnight
service, and truck route changes produced improvements as well as
decreases in scheduled service. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :7

We recommend that the Postmaster General

  direct that the required investigation of the Waterloo
     consolidation be done to determine why planned savings were not
     achieved and, if possible, address the causes in order to
     capture savings;

  defer plans to consolidate mail processing operations from Decorah,
     IA, into the Waterloo Center until the postimplementation review
     is complete; and

  include and enforce a requirement for postimplementation reviews of
     mail processing consolidations in the new area mail processing
     guidelines. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

The Postal Service provided written comments on a draft of this
report (see app.  II) and said that it was acting on each of our
recommendations. 


---------------------------------------------------------- Letter :8.1

We are also sending copies of this report to the Postmaster General,
the Senate Committee on Governmental Affairs, the House Committee on
Post Office and Civil Service, and other interested parties.  We will
also make copies available to others on request. 

The major contributors to this report are listed in appendix III. 
Please call me on (202) 512-8387 if you or your staff have any
questions. 

Sincerely yours,

J.  William Gadsby
Director, Government Business
 Operations Issues


LOCATION OF COMMUNITIES AFFECTED
BY THE WATERLOO, IA, AREA MAIL
PROCESSING CENTER
=========================================================== Appendix I



   (See figure in printed
   edition.)

   Source:  GAO.

   (See figure in printed
   edition.)




(See figure in printed edition.)Appendix II
COMMENTS FROM THE UNITED STATES
POSTAL SERVICE
=========================================================== Appendix I


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III


   GENERAL GOVERNMENT DIVISION,
   WASHINGTON D.C. 
------------------------------------------------------- Appendix III:1

Michael E.  Motley, Associate Director
James T.  Campbell, Assistant Director
Leonard Hoglan, Assignment Manager


   DENVER REGIONAL OFFICE
------------------------------------------------------- Appendix III:2

Anthony R.  Padilla, Evaluator-in-Charge
James R.  Moore, Evaluator
Cynthia Schilling, Reports Analyst
