Postal Service: Progress in Implementing Supply Chain Management Initiatives

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.

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.

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.

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.

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.

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.