Objective

Our objective was to evaluate trends and practices the U.S. Postal Service uses to optimize its processing network.

The Postal Service’s processing network includes 285 facilities that processed 301 billion pieces of mail in fiscal year (FY) 2018, with an average staffing complement of 82,065. These facilities are responsible for processing mail for delivery to 159 million addresses.

As labor costs are 80 percent of the Postal Service’s budget, it is important to manage personnel expenses. The Postal Service uses total operating expense and mail processing productivity (mailpieces processed per workhour) to manage costs. They also use the Function 1 (F1) Scheduler tool to establish staffing levels at plants.

Further, the Postal Service has implemented strategic initiatives to optimize the processing network. Specifically, the goal of the Ready Now → Future Ready Optimize Network Platform initiative was to help evaluate, right size, and equip the processing network to increase operating efficiency and reduce costs.

Additionally, the Operational Window Change (OWC) revised First-Class Mail service standards in January 2015. The initiative was intended to help align network processing capacity – processing machines and people – with declining mail volume and allow for more time to process certain types of mail. The Postal Service also eliminated excess mail processing capacity and plants through consolidations. Management calculated planned costs savings from plant consolidations by completing Area Mail Processing (AMP) feasibility studies. However, consolidations were suspended in FY 2015 due to operational considerations.

What the OIG Found

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

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). The Pacific Area experienced the largest increase in mail processing workhours (5 percent) while the Eastern Area had the largest decrease (3 percent).

In a prior audit report, we recommended the Postal Service develop and implement annual tracking methodologies for any significant projected operational costs or savings and use a sensitivity analysis to account for such impacts as changes in mail volume and labor and transportation costs.

We plan to conduct additional audit work related to mail processing network efficiency and assess efforts to standardize operations.

What the OIG Recommended

We recommended management:

  • 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.
  • Revise and update AMP feasibility studies to determine whether cost savings could be realized and consolidations should continue.

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Comments (2)

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  • anon

    "For example, management stated that the amount of space needed to work packages and the amount of empty equipment needed to move packages is much higher. The additional container movement equates to significantly more mail handler workhours and associated costs." -Is that an elaborate rationale to justify why it would have made more sense to leave package sorting equipment in particular plants instead of deciding to AMP them whereby all those extra containers full of labor intensive inventory (packages) now have to travel much further? You highlight the North Bay P&DC as being under TOE each year... this very site was partially AMP'd where the SPBS was taken out. How much money has been lost by having to ship volume out to other sites now instead of having left the SPBS at the North Bay P&DC? Does this mean there was no real good reason for doing so as the hours reduction simply weren't meaningful in the grand scheme of things? Management claims a reduction in maintenance costs associated with reducing equipment, isn't that just a pittance compared to the increased costs associated with having to move/process the volume elsewhere in transportation/mail processing costs?

    Sep 12, 2019
  • anon

    You can probably expect labor costs to go up for 2019. Especially with pilot program splitting the carriers jobs into two parts causing workers to have to come in earlier and stay later to get their job done. That is the exact opposite of efficient. Not to mention it puts the carriers safety at risk by causing some to be delivering mail after dark. If I were a carrier I would refuse to deliver once it got dark due to safety reasons. I.E. getting robbed, raped, assaulted etc.

    Sep 10, 2019