Has USPS Targeted the Wrong Plants for Closure?

The U.S. Postal Service's plan to reduce its mail-processing network by half has a major flaw, according to a Postal Regulatory Commission opinion released Friday: The plan would tend "to move processing assignments from more productive plants to less productive plants."

USPS goofed in assuming that consolidating mail sorting into larger plants would improve productivity, according to the PRC's advisory opinion on the Postal Service's ambitious Network Rationalization plan. In fact, larger plants historically have tended to process fewer mail pieces per workhour than smaller ones, the PRC's analysis finds. (Five-Day Delivery and Reduced USPS Service Standards Could Face Legal Barrier explores another issue addressed in the lengthy advisory opinion.)

"Shifting volume from less productive to more productive plants, without changing operating windows or service standards, would increase productivity by 18 percent, and save $1.3 billion in direct mail processing costs," the ruling says.

That's more than the $968 million USPS projects that its plan will save in mail-processing costs, and the PRC believes that projection is overly optimistic because of questionable assumptions.

In theory, large plants have the advantage of more automation, such as the football-field-sized Flats Sequencing System machines. But FSS has been mostly a disappointment so far (and may actually decrease productivity in mail sortation). The PRC finds that large plants are inherently less efficient because of the greater distances involved in moving mail from one stage to another.

How much idle time?
A key point of disagreement is USPS's claim that 27% "of workhours within automated, mechanized, and manual processing are spent waiting for the mail." The PRC says the number is only 1% to 4%. The Postal Service envisions consolidation leading to huge productivity gains by eliminating such idle time, but the commission questions whether the surviving plants will really be able to work the mail far more efficiently than they do today.

"To simply restore mail processing costs to FY 2010 levels, the set of plants surviving after reconfiguration will have to increase their productivity by an average of 8.4 percent above the productivities that they achieved in FY 2010," the ruling says. "Further, the Postal Service will have to increase the average productivity of all plants in the network by 20.4 percent to achieve the level of savings that it expects."

USPS projects its plan will save a total of $2.1 billion annually, with much of the savings coming from transportation and from reduced delivery standards -- that is, longer lead times for delivering mail.The PRC agrees that network consolidation makes sense, but it thinks USPS's savings estimate is too high and that it may be underestimating the revenue that will be lost if service standards are lowered.

Concluded PRC chairman Ruth Goldway, "I strongly believe that the information the Commission has developed is so persuasive that once it is carefully studied by the Postal Service and the mailing community, the Postal Service will utilize it, implementing a rationalization plan that saves costs while preserving service."

Related articles:

• Redrawing the Map: A Look at USPS' Network Rationalization Plan By the way, I had no idea when I published this that the PRC decision would be coming out less than 24 hours later. 
• Postal Watchdogs Trying to Unleash USPS Innovation  
• Postal Service Has Too Many Employees and Pays Them Too Much, Mailer Groups Say