Cover Mail Processing and Transportation Operational Changes Audit Report Report Number NO-AR-16-009 September 2, 2016 Background less mail sorting at fewer facilities, and use of more efficient Highlights mail sorting machines. The OWC also required changes in The Postal Accountability and Enhancement Act of 2006 noted mail transportation. the U.S. Postal Service had more facilities than it needed and should streamline its network to eliminate excess costs. Since implementing the OWC, stakeholders such as members The act requires the Postal Service to prepare a strategy for of Congress, commercial mailers, and individual customers, rationalizing its facilities network and remove excess processing have voiced concerns that delayed mail is increasing and capacity and space. For the 9 months following service is declining. the January 5, 2015, service In 2011, the Postal Service announced its Network The objective of this audit was to determine the timeliness of Rationalization Initiative (NRI) in response to its mail processing and transportation since the January 5, 2015, unsustainable financial situation. The purpose of NRI is standard revisions, the Postal service standard revisions. In addition, we reviewed whether to align the Postal Service’s network processing capacity the projected cost savings from the OWC were realized. Service experienced increased with its declining mail volume through equipment and plant consolidations and operational changes. nationwide delayed mail, What the OIG Found As part of the NRI, on January 5, 2015, the Postal Service For the 9 months following the January 5, 2015, service reduced performance scores, revised its First-Class Mail® service standards, eliminating single-piece overnight First-Class Mail service and shifting standard revisions, the Postal Service experienced increased decreased mail processing mail from a 2-day to a 3-day service standard. These revisions nationwide delayed mail, reduced performance scores, enabled the Postal Service to expand its mail processing decreased mail processing productivity, and increased productivity, and increased operational window and this change is known as the operational transportation costs. window change (OWC). The Postal Service described the OWC transportation costs. as one of its most significant changes since automating mail For the period January through September 2015, the processing. It was designed to allow the Postal Service Postal Service reported delayed mail processing increased by to process mail on fewer machines, thus using less facility almost 638 million pieces (or 51 percent) compared to the same square footage. period in fiscal year (FY) 2014. Further, the Postal Service’s service standard measurements indicated that 2-day and 3-5 The OWC was projected to save over $805 million annually day First-Class Mail weekly performance scores declined by as through increased mail processing productivity, decreased much as 7 percent and 34 percent, respectively, compared to premium pay, additional delivery point sequencing of mail, the same period a year earlier. Mail Processing and Transportation Operational Changes Report Number NO-AR-16-009 1 The Postal Service did not The Postal Service has taken significant steps to reduce results, 27 percent (or 801 pieces) did not meet the service delayed mail, notably deploying quick response teams based standards. achieve projected savings on Lean Six Sigma processes to determine causes and establish corrections. We found the increase in delayed mail and decrease in service associated with the OWC. scores was caused by three significant network and operational Management could provide Subsequently, the Postal Service reported delayed mail changes, insufficient air transportation capacity, mail arriving processing decreased by about a billion pieces (or 54 percent) late at processing plants, outdated operating plans, and adverse support for achieving only 10 for the period October 2015 through April 2016, compared to winter weather. the same period in FY 2014. First-Class Mail service scores percent of the projected annual have significantly improved since the initial decline and are In addition to service issues, the Postal Service did not achieve OWC savings presented to the within about two percentage points of April 2014 service scores. projected savings associated with the OWC. Management could Based on this improvement, we believe the Postal Service provide support for achieving only 10 percent of the projected Postal Regulatory Commission should not revert back to its prior operating window. annual OWC savings presented to the Postal Regulatory Commission in 2011 of over $805.5 million. in 2011 of over $805.5 million. Although the Postal Service reported national delayed mail has been reduced significantly, it is still a problem for specific The Postal Service stated there have been additional savings Processing and Distribution Centers serving certain urban realized from the OWC separate from the projections presented and rural customers. In Quarters 1 and 2, FY 2016, the top to the Postal Regulatory Commission. The OIG validated 10 processing facilities with delayed mail had about 247 million $231 million additional savings. pieces of delayed mail, or almost 30 percent of all delayed mail nationwide. These 10 facilities in CA, CO, IL, MD, PA, NJ, NY, However, the Postal Service exceeded its transportation and TX process mail for about 13.7 million delivery addresses. budget plan by over $200 million (or 3 percent) in FY 2015. The Postal Service attributes $130.2 million of increased In order to independently measure service after the OWC, we transportation costs to the OWC. About 1.7 billion more conducted a nationwide non-statistical mailing test of urban pieces of First-Class Mail (or 40 percent) were transported via and rural areas from September through November 2015 and contractor air transportation in 2015 than in the previous year February through March 2016. We tested single piece due to changes in the critical entry time for this mail. First-Class Mail® letters, flats, and parcels and Priority Mail® flats and packages. Of the 2,995 pieces included in our test Mail Processing and Transportation Operational Changes Report Number NO-AR-16-009 2 What the OIG Recommended nationwide operational changes or consolidations; increase air capacity to meet its critical entry times; create a nationwide We recommended the vice president, Finance and Planning, system to track and report the amount, cause, and origin of mail re-evaluate the operational and transportation financial impacts arriving after its critical entry time; and establish a nationwide associated with the OWC. database to capture and share the Lean Six Sigma team’s lessons learned. In addition, we recommended instructing We recommended the vice president, Network Operations, management to update all operating plans to reflect the OWC develop and implement a nationwide strategy to improve mail and continue monitoring and reducing delayed mail processing. processing productivity before implementing any additional Mail Processing and Transportation Operational Changes Report Number NO-AR-16-009 3 Transmittal Letter September 2, 2016 MEMORANDUM FOR: LUKE T. GROSSMANN VICE PRESIDENT, FINANCE AND PLANNING ROBERT CINTRON VICE PRESIDENT, NETWORK OPERATIONS FROM: Michael L. Thompson Deputy Assistant Inspector General for Mission Operations SUBJECT: Audit Report – Mail Processing and Transportation Operational Changes (Report Number NO-AR-16-009) This report presents the results of our audit of the Postal Service’s Mail Processing and Transportation Operational Changes (Project Number 15XG023NO000). Our objective was to determine the timeliness of mail processing and transportation since the January 5, 2015, service standard revisions. We appreciate the cooperation and courtesies provided by your staff. If you have any questions or need additional information, please contact Margaret B. McDavid, director, Network Processing, or me at 703-248-2100. Attachment cc: Corporate Audit and Response Management Mail Processing and Transportation Operational Changes Report Number NO-AR-16-009 4 Table of Contents Cover Highlights ......................................................................................................1 Background ................................................................................................1 What the OIG Found ..................................................................................1 What the OIG Recommended ...................................................................3 Findings ........................................................................................................7 Introduction ................................................................................................7 Summary ....................................................................................................8 Mail Not Processed Timely ........................................................................9 Management Actions ..............................................................................10 Service Scores .........................................................................................11 Test of First-Class Mail and Priority Mail Service .....................................15 Network and Operational Changes ..........................................................21 Insufficient Air Transportation Capacity ....................................................22