OIG: Status Report on USPS Network Rationalization Initiatives

This report presents the results of our audit of Network Rationalization Initiatives (Project Number 09XR001EN000). This review is part of a series to evaluate the U. S. Postal Service’s Network Rationalization1 initiatives. Our objectives were to evaluate the Postal Service’s progress in streamlining the network since fiscal year (FY) 2005;and identify the key challenges in the planning, development, and implementation process. This self-initiated audit addresses operational and strategic risks. See Appendix A for additional information about this audit.

Between FYs 2005 and 2009, the Postal Service made progress in its effort to streamline its mail processing and transportation infrastructure; however, management has been unable to adjust resources to fully offset mail volume declines, resulting in a deteriorating financial condition. Mail volume decreased by approximately 35 billion pieces during this period. See Appendix B for our detailed analysis of this topic. In response, management has:

? Reduced approximately 205.2 million workhours — the equivalent of 117,273 employees — with the majority in mail processing and customer service functions.
? Reduced 37 million highway contract route (HCR) miles (but overall transportation expenses increased by $1.5 billion).
? Closed 68 airport mail centers (AMCs) and 12 remote encoding centers (RECs).
? Realigned bulk mail center (BMC) operations with no BMC closures.

1 The Postal Service has referred to its network redesign as Evolutionary Network Development (END), Network Integration and Alignment, and Network Rationalization. We use Network Rationalization throughout this report for consistency.

? Consolidated originating mail operations at 13 processing and distribution centers (P&DCs) and closed two P&DCs.

While management has taken unprecedented action to reduce costs, additional opportunities remain to reduce excess capacity in the plant network.

Streamlining the network presents the Postal Service with many challenges in planning,developing, and implementing rationalization initiatives. The most immediate challenge is to dramatically reduce costs and eliminate inefficiencies fast enough to enable the Postal Service to meet its financial obligations, while complying with its Universal Service Obligation.2 The economic downturn and resulting mail volume declines continue to complicate this difficult financial situation. Additional challenges include opposition to infrastructure changes, resistance to First-Class Mail® (FCM) service downgrades, facilities with long-term leases, workforce inflexibilities, facility data consistency and reliability, and lack of a comprehensive network plan.

To remain financially viable, the Postal Service must effectively streamline the mail processing and transportation network and optimize the workforce. 3 The Postal Service has embarked on a journey of transformational changes. Management, congress, unions, and stakeholders must work together during this period of rapid change to ensure network rationalization initiatives have the energy needed to be successful in spite of challenges.

Area Mail Processing (AMP) Consolidations
The Postal Service has made limited progress in implementing AMP consolidations4 in the P&DC network. There are 268 P&DCs nationwide and, since FY 2005, the Postal Service has implemented 13 AMP consolidations. Only two consolidations have resulted in full facility closures.5 Stakeholder opposition and resistance to consolidations with FCM service downgrades were the primary factors that delayed or resulted in the disapproval of AMPs. Another contributing factor is the lack of specific criteria for identifying consolidation opportunities the Postal Service can consistently apply nationwide. Additionally, the Postal Service has cancelled some AMPs without providing their rationale. If management does not consistently apply established criteria to identify consolidation opportunities, stakeholders may question the credibility of the process. Development of objective criteria and implementation of a top-down approach would provide a more consistent and defensible approach to AMP consolidations that may reduce stakeholder resistance, accelerate the AMP consolidation process, and reduce excess capacity in the P&DC network. See Appendix B for a detailed analysis of this topic.

We recommend the vice president, Network Operations:

1. Develop and document specific criteria to identify consolidation opportunities in the plant network.
2. Develop a periodic (annual) review process using a top-down methodology to ensure consistency in identifying consolidation opportunities.
3. Aggressively pursue processing and distribution center and other plant facility closures to eliminate excess plant capacity.

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