• on Feb 1st, 2010 in Mail Processing & Transportation | 21 comments
    To remain financially viable, the Postal Service must effectively streamline its mail processing and transportation networks and optimize its workforce. Between fiscal years (FYs) 2005 and 2009, the Postal Service made progress in these efforts; however, management was unable to adjust resources quickly enough to fully offset declines in mail volume, resulting in a deteriorating financial condition. In FY 2009, the Postal Service experienced the largest 1-year decline in total mail volume since the Postal Reorganization Act of 1970 — a drop of more than 25 billion pieces. Streamlining the network, while complying with its Universal Service Obligation, presents the Postal Service with many challenges in planning, developing, and implementing network rationalization initiatives. The economic downturn and resulting mail volume declines continue to complicate this difficult financial situation. Consolidating mail processing operations and closing unneeded plants is controversial. With pressures from Postal Service stakeholders to maintain the status quo, the Postal Service has been limited in its ability to implement much-needed streamlining initiatives. Where should the Postal Service look to gain greater efficiencies in its network?
    This topic is hosted by the OIG's Network Optimization directorate
  • on Dec 28th, 2009 in Mail Processing & Transportation | 14 comments
    When people try to discover whether the Postal Service is operating more efficiently or not, they often talk about TFP. What is TFP? TFP stands for Total Factor Productivity. It measures the ratio of the Postal Service’s outputs to its inputs, in other words, how much output the Postal Service produces with the inputs it uses.

    The useful thing about TFP is that it measures only the quantity of items produced and used — not their price. Why is this important in a productivity measure? It measures solely how efficiently the output is produced. As an example, consider a painting business. If the price of the paint the company must buy falls, the business will be more profitable, but its total factor productivity has not changed. If the business finds a new painting method that only uses half as much paint, it also becomes more profitable. However, in this instance, it is also producing the same output with fewer inputs, and its TFP has increased.

    For the Postal Service, inputs are labor, materials, and capital. Outputs include mail volume and special services. Since the Postal Service is a network industry, the total number of delivery points is included in the final workload measure.

    The table below shows the Postal Service’s input, workload, TFP growth rates, and net income from 2000 to 2009. TFP increases do not always result in positive net income, because profitability is affected by other items like the price of inputs. Although TFP increased from 2000 to 2007, TFP declined in 2008 and 2009. As the table shows, the Postal Service cut inputs significantly in 2008 and 2009, but it was not able to cut them enough to offset the declines in workload.

    chart showing input growth, workload growth, tfp growth, and net income from 2000 to 2009

    If the decline in mail volume moderates, will the Postal Service be able to return to TFP growth? Also, what is your opinion of the TFP measure? Business Mailers Review recently reported that there are discussions at the Postal Service about whether to move away from TFP and use another productivity measure such as deliveries per hour. What do you think? Are there other productivity measures that you believe would be more appropriate for the Postal Service?

    This topic is hosted by the OIG's Risk Analysis Research Center (RARC).

  • on Sep 21st, 2009 in Mail Processing & Transportation | 90 comments
    Keep Sunday Operations?

    We’ve all heard the bad news. Mail volume in fiscal year (FY) 2008 totaled 202.7 billion pieces, a decline of 9.5 billion pieces or 4.5 percent compared to the previous fiscal year. Mail volume has declined even further this year. At the end of the last quarter, mail volume was down more than 12 percent from the same period last year. Most recently, the Postal Service lost $2.4 billion in the third quarter of FY 2009 and projected a net loss of more than $7 billion for FY 2009.

    As a panelist during the August 6 Senate subcommittee hearings on the Postal Service, Postmaster General Jack Potter once again focused on the need for 5-day delivery, greater flexibility, and the elimination of some network infrastructure. During the same hearings, the Government Accountability Office (GAO) recommended urgent action to streamline the mail processing and retail networks as the Postal Service no longer has sufficient revenues to cover the cost of maintaining its large network of processing and retail facilities.

    End Sunday Operations?

    The reality of the current situation is that in many areas the Postal Service has an excess of equipment, staff, and facilities to process a declining volume of mail. Given the harsh economic conditions faced by the Postal Service today, looking at opportunities to cut costs by streamlining inefficient operations or eliminating unnecessary ones makes good business sense.

    One area for consideration is the elimination of Sunday mail processing operations. In many Processing and Distribution Centers around the nation, mail processing activities are run on Saturday night and into Sunday just as they are the rest of the week.

    With mail volume declining, should the Postal Service reduce mail processing operation to 6 days a week, rather than the traditional 7 days, and allow employees to have Sunday off?

    This blog is hosted by the Network Operations directorate.