OIG Finds Network Changes Failed to Yield Planned Results

An audit report by the Postal Service’s Office of Inspector General revealed that changes the USPS has instituted in its processing operations have failed to produce savings at a pace commensurate with the overall decline in mail volume. Released September 9, the report (NO-AR-19-006, US Postal Service Processing Network Optimization) evaluated “trends and practices the U.S. Postal Service uses to optimize its processing network.”

Summary

The OIG noted that the Postal Service “uses total operating expense and mail processing productivity (mailpieces processed per workhour) to manage costs” for its processing network of 285 facilities. In addition, the agency uses the “F1 Scheduler tool to establish staffing levels at plants,” has an initiative “to help evaluate, right-size, and equip the processing network to increase operating efficiency and reduce costs,” revised First-Class Mail service standards in January 2015 “to help align network processing capacity … with declining mail volume,” and has “eliminated excess mail processing capacity and plants through consolidations.”

Just the same, despite these activities, the OIG found that

“The Postal Service has not decreased mail processing costs at a rate consistent with the decline in mail volume. Mail processing workhours have not decreased since FY 2014, while overtime and penalty overtime workhours have increased significantly. As a result, the Postal Service is processing mail with lower productivity for manual, flats, and letters. Reducing mail processing costs and workhours is critical at a time when mail volume is declining.”

Processing costs

Looking at mail processing costs, the OIG found that decreases in cost were not keeping up with decreases in mail volume.

“From FY 2014 to 2018, mail processing costs increased by $301.3 million (or 4 percent). When adjusted for inflation, mail processing costs decreased by 2 percent. However, processed mail volume decreased by 9 percent (or 31 billion mailpieces). In FY 2017, the Postal Service was able to decrease mail processing costs by $6.9 million, but mail processing costs the following year, in FY 2018, increased by $37.4 million. This volatility in costs was especially apparent in mail processing overtime and penalty overtime. In FY 2017, overtime and penalty overtime costs decreased by $105.8 million but in FY 2018, these costs increased by $256.9 million. From FY 2014 to 2018, mail processing workhours increased by 11,987 (or 0.01 percent).”

Mail Processing Costs Adjust for Inflation and Process Mail Volume FY 2014 - 2018  

Mail Processing Costs, Overtime and Penalty Overtime FY 2014 - 2018

Productivity

Looking at productivity (mailpieces processed divided by workhours charged), the OIG found that it’s been declining; over the period of fiscal years 2014 through 2018:

Productivity for manual processing decreased by 20 percent. Manual mail volume declined but manual mail processing workhours and overtime increased. …
Productivity for flats processing decreased by 18 percent. Flats volume declined while flats mail processing workhours and overtime workhours increased. ...
Productivity for letters decreased by 5 percent. Letter processing had the largest decline in processed mail volume (9 percent) while processing workhours only decreased by 5 percent and overtime workhours increased by 34 percent. …
“Conversely, productivity for parcels has increased 67 percent. With parcel volume increasing by 2.1 billion (or 50 percent), the Postal Service has invested in additional parcel processing machines. Specifically, the addition of 41 Small Package Sorting Systems and two High Throughput Package Sorters have increased capacity, throughput, and runtime, and decreased the number of workhours by 3.1 million (or 10 percent) used to process parcels.”

Though the USPS had implemented the aforementioned F1 Scheduler as a tool to manage staffing, the OIG found that

“… the F1 Scheduler did not always schedule the right people, in the right place, at the right time. While there was a decrease of, on average, 5,000 career mail processing positions in FY 2018, mail processing overtime and penalty overtime workhours increased by 5.1 million (or 23 percent) and about 917,000 (or 113 percent), respectively.”

In addition, the OIG noted, USPS

… strategic initiatives to reduce costs and optimize the processing network have not achieved planned cost savings. …
“From FY 2014 to 2018, the Postal Service planned for operating expenses to increase each FY despite declining mail volume. However, even with the increased operating expense budgets, the Postal Service exceeded their expense plan each FY. …

National Operating Expense Plan vs. Actual FY 2014 - 2018

Not surprisingly, the OIG found that productivity and budget achievement were not consistent among areas and processing facilities; some were able to decrease workhours, others not, and some facilities were able to improve their expense results or, as in the case of nine facilities, operate under their expense budgets for each of the five fiscal years the OIG studied.

(The nine facilities that stayed under their plan for total operating expenses for six fiscal years (FY14-FY18) were Cataño (PR) Annex, Greensboro (NC) NDC, Mount Hood (OR) P&DC, North Bay (CA) P&DC, Paducah (KY) P&DF, Sioux Fall (SD) P&DC, St Louis (MO) P&DC, Traverse City (MI) P&DC, and Wausau (WI) P&DF.) The OIG did not state whether (or name) any facilities who exceeded their expense plan each year over the same span.

Other changes

The Network Rationalization Initiative, started in 2011, was meant to “align the Postal Service’s network processing capacity with its declining mail volume through equipment and plant consolidations and operational changes.” However, for a variety of reasons – including resistance from postal labor unions and their friends in Congress – it was paused in FY 2015 and has never been completed. The OIG noted that events may have overtaken the initiative:

“Management calculated planned cost savings from consolidations by completing AMP feasibility studies. In FY 2018, the Postal Service planned to start consolidations again; however, it did not resume consolidations, and has not updated AMP feasibility studies to determine if savings still exist.”

The USPS had concurrently changed service standards for First-Class Mail, eliminating most overnight service and increasing two- and three-day commitments. In this regard, the OIG stated:

“These revisions enabled the Postal Service to expand its mail processing operational window to process mail on fewer machines, thus using less facility square footage. ... Plants nationwide had to adjust their mail processing and transportation operations to meet critical entry times (CET), clearance times, and dispatches of value associated with the [change]. ...
“The [change] was projected to save over $805 million annually through increased mail processing productivity, decreased premium (overtime) pay, additional delivery point sequencing of mail, less mail sorting at fewer facilities, and use of more efficient mail sorting machines. ... The Postal Service projected the [change] would save $1.61 billion from FY 2016 to 2017 but in our prior audit work we could verify about $90.65 million (or 5.6 percent) of savings.”

The OIG offered three recommendations to the USPS:

• “… develop a plan to reduce costs and improve the number of managers at plants achieving their total operating expense goal;
• “… utilize lessons learned and best practices from the significant increase in parcel productivity to develop a plan to increase productivity for manual, flats, and letter processing; and
• “… revise and update area mail processing feasibility studies to determine whether cost savings could be realized and consolidations should continue.”

Management’s response generally accepted the OIG’s findings and recommendations.

The true measures will be whether operational productivity improves, whether costs are reduced as volume declines, and whether forecast savings are actually realized. In turn, these can be achieved only if there’s more consistent implementation of, and compliance with, the related processes.


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