Postal Service:

Progress in Implementing Supply Chain Management Initiatives

GAO-04-540: Published: May 17, 2004. Publicly Released: May 17, 2004.

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The Postal Service is on the cusp of a major transformation to improve its fiscal outlook. One part of this transformation involves procurement. The Postal Service is homing in on supply chain management, a process that has helped successful private-sector companies leverage their buying power and identify more efficient ways to procure goods and services. To assist congressional efforts to enact fundamental postal reform, GAO was asked to determine (1) the extent to which the Postal Service has been successful in implementing and realizing savings from its supply chain management initiatives and (2) whether these initiatives have had an effect on small businesses.

The Postal Service has had mixed success in implementing the supply chain management initiatives we reviewed: the bulk fuel program; reverse auctions for transportation contracts; and national contracts for boxes, custodial supplies, labels, retail packaging, and tires. The Postal Service reported over $78 million in fiscal year 2003 savings and revenue from these initiatives. However, the Postal Service has been unable to recover millions of dollars in potential savings because of implementation problems with the bulk fuel program. For other savings initiatives, baseline data used to calculate savings were, in some cases, inaccurate or could not be validated because the Postal Service lacks a system for harnessing annual spending data. Since the Postal Service started using the national contracts GAO reviewed, the number of small business suppliers has dropped dramatically. Acquisition plans for most of these contracts did not address small business participation, either at the prime or subcontractor level. GAO could not determine the effect that the bulk fuel program and reverse auctions have had on small businesses because Postal Service contracting officers and contractors have been using incorrect business size standards, and, as a result, the reported small business accomplishments are not accurate. Further, the Postal Service's new supplier diversity policy does not establish targets for contracting with small businesses. Therefore, the Postal Service will have difficulty gauging the effect of supply chain management initiatives on these businesses and holding contracting officers accountable for implementing the policy's objective of ensuring improvement in the Postal Service's relationships with small businesses.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To improve small business reporting and participation, the Postmaster General of the United States should direct contracting officers and other acquisition personnel to (1) explore during acquisition planning ways that small business participation can be addressed in a supply chain management environment and (2) document their decisions.

    Agency Affected: United States Postal Service

    Status: Closed - Implemented

    Comments: The Postal Service, in response to GAO's recommendation to improve small business reporting and participation, developed training for its Supply Management personnel that reinforced existing policies that requires addressing supplier diversity in their purchase plans, proper use of subcontracting plans in the supplier selection process, and the importance of accurate and timely subcontracting reporting. Postal Service requires its purchasing managers to review the Supplier Diversity Corporate Plan and implement the Plan's objectives in their purchases. This requires documenting the supplier diversity strategies, outreach, market analysis, publicizing efforts, supplier training, performance indicators, and planned monitoring mechanisms as applicable to individual purchases.

    Recommendation: To improve small business reporting and participation, the Postmaster General of the United States should train contracting officers on the appropriate size standards for different types of businesses and direct them to post the proper standard in the solicitation.

    Agency Affected: United States Postal Service

    Status: Closed - Implemented

    Comments: GAO reported that Postal Service contracting officers and the contractors themselves had not used the correct size standard for defining a small business. In addition to training its contracting officers on the appropriate size standards for different types of businesses, GAO recommended that the contracting officers post the proper standard in the solicitation. The Postal Service has developed training for its contracting officers on the size standards for different types of businesses and requires its contracting officers to include the appropriate size standards in the solicitations.

    Recommendation: To capture accurate savings from its reverse auctions for highway contracts and ensure that the Postal Service gets the best possible price, the Postmaster General of the United States should conduct an analysis to determine whether reverse auction overtime procedures would result in the Postal Service's achieving additional savings.

    Agency Affected: United States Postal Service

    Status: Closed - Implemented

    Comments: GAO found that 75 percent of the highway contract auctions conducted between October 2003 and February 2004 received final bids in the last minute of the auctions. To ensure that the winning bid is the lowest possible, GAO recommended that the Postal Service use the option of an overtime process until bidding comes to a halt, as it did with other highway contracts. The overtime process provides all suppliers with an additional increment of time to react to last-minute bids if they believe they can offer a lower price, thereby not rewarding the contractor who waited until the very last second to place its bid. The Postal Service now only has one standard self-service reverse auction application that features overtime functionality.

    Recommendation: To capture accurate savings from its reverse auctions for highway contracts and ensure that the Postal Service gets the best possible price, the Postmaster General of the United States should encourage contracting officers to try to negotiate further price reductions when only one bid is received.

    Agency Affected: United States Postal Service

    Status: Closed - Implemented

    Comments: GAO found that the Postal Service has had some success with using reverse auctions, a web-based tool that enables highway contractors to compete for contracts in an electronic bidding format, but found that the lowest possible price might not be obtained when only one bid is received. The Postal Service emphasized that it supports getting the best price and will continue with the practice of establishing a challenging reserve price (the highest acceptable price), and when only one bid is received, contracting officers will be reminded of their responsibility to determine whether a particular purchasing situation calls for further price negotiations. In doing so, contracting staff will consider factors such as pricing history, comparisons with results obtained in similar competitive reverse bid events, performance, delivery requirements, quality, and the cost-benefit of conducting negotiations.

    Recommendation: To move toward an accurate and less burdensome method of recouping savings under the bulk fuel program, the Postmaster General of the United States should develop a time-phased plan for expanding the number of fueling locations.

    Agency Affected: United States Postal Service

    Status: Closed - Not Implemented

    Comments: Plan not implemented. According to the Postal Service, initial compilation and review of data across the fueling network has been completed. Analysis of data is completed and recommendations were made on March 19, 2007. The Postal Service determined that focusing on expanding the number of fueling sites is not the best option. As part of the continually evolving process of reviewing and adjusting the Postal Service's overarching fuel management activities in early 2007, the USPS piloted a program to determine if it could identify 100% of retail fuel purchases made throughout the United States. USPS undertook an initiative to analyze all 13 million retail purchases made in fiscal year 2007 to determine if more efficient and cost effective fuel purchasing initiative could be made. The study has been completed and the USPS is currently facilitating the results of study into action plans to comprehensively modify postal fuel purchasing and management procedures.

    Recommendation: To move toward an accurate and less burdensome method of recouping savings under the bulk fuel program, the Postmaster General of the United States should place a high priority on automating the fuel price adjustment system.

    Agency Affected: United States Postal Service

    Status: Closed - Implemented

    Comments: The Postal Service placed a high priority on implementing its automated fuel adjustment system and is now fully operational at 81 of the 82 current fueling locations. The remaining site should be fully operational in June 2007.

    Recommendation: To improve small business reporting and participation, the Postmaster General of the United States should establish targets for small business participation in Postal Service contracts.

    Agency Affected: United States Postal Service

    Status: Closed - Implemented

    Comments: GAO concluded it would be difficult for the Postal Service to measure progress in small business contracting since it elected not to specify targets for small business procurement. Thus, the Postal Service would not have been able to determine whether its supplier diversity policies were being successfully implemented. In February 2006, the Postal Service agreed to adopt annual small business goals to make its diversity program and purchasing systems more consistent with Small Business Administration standards. Accordingly, beginning in fiscal year 2007, the Postal Service will establish annual goals for small, minority-owned, and woman-owned business participation in Postal Service purchasing. According to the Postal Service, once established, the goals as well as compliance results will be publicly available. This action should help ensure that contracting officers and other key officials are held accountable for improving small business contracting and provide transparency into the Postal Service's improvement efforts.

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