Postal Service Dynamic Route Optimization and Cost Savings Initiative
Our objective was to evaluate the cost savings for implementing the Postal Service’s Dynamic Route Optimization (DRO) initiative.
The Postal Service began implementing the initiative in fiscal year (FY) 2016. The initiative allows for morning Highway Contract Routes (HCR) to change from a fixed-price contract with set routes (static) to a rate per mile (RPM) contract with varying departure times, lines of travel, and mail types transported based on mail volume (dynamic) to optimize routes thus reducing mileage and transportation costs. The Postal Service awards DRO contracts for sites selected for conversion and uses Commercial Off-the-Shelf Transportation Management System (TMS) software in conjunction with the Shipment File Web application to generate weekly dynamic manifests at the DRO sites.
The Postal Service spent about $6.59 million piloting the initiative at the Dulles Processing and Distribution Center (P&DC), VA, in January 2016, and expanded it to the El Paso P&DC, TX, and Margaret L. Sellers P&DC, CA in September 2016.
The Postal Service approved an additional $48.47 million in October 2016 to implement the initiative nationwide through FY 2019. The goal was to deploy the program to an additional 90 sites by FY 2018 and 102 additional sites by FY 2019, for a total of 195 sites, including the three pilot sites.
The Postal Service projected total savings of $22.38 million for FYs 2017 and 2018, and a total of $301.21 million by FY 2024.
The Postal Service reported implementation (changed static HCR contract to DRO contract) of the initiative at 34 sites as of the end of FY 2018. We visited nine of these sites, covering all seven Postal Service areas. While DRO contracts were in place for these nine sites, the Postal Service reported that four sites were fully converted to DRO and operating dynamic routes; the remaining five sites were operating static routes even though a DRO contract was in place.
In FY 2018, the Postal Service spent about $4.32 billion on HCR transportation and drove about 1.6 billion miles. This was a cost increase of about $249 million (or 6.1 percent) and a decrease in miles driven of about 41.7 million miles (or 2.5 percent) from FY 2017.
What the OIG Found
The DRO initiative did not achieve planned cost savings for FYs 2017 and 2018 because the Postal Service did not identify and resolve program issues before national rollout and did not accurately measure related Key Performance Indicators (KPI).
Specifically, despite the Postal Service spending $32.72 million in total investments in FYs 2017 and 2018, at the time of our audit, 29 of the 34 sites (or 85 percent) had not fully optimized under DRO and were still running static routes. Four of the 29 static sites were one time optimized but converted back to static routing using the last dynamic manifest (frozen). Additionally, of the five sites that were reportedly fully optimized to dynamic routing, only one site was operating dynamically. Three sites required significant time and resources to manually adjust the weekly dynamic manifests to meet local transportation requirements. The remaining site continues to run frozen routes based on the initial optimization routes without following the dynamic manifest schedule. In addition, payments to the HCR suppliers for this site were inaccurately based on the dynamic manifest mileage.
Further, the Postal Service implemented the program using the TMS software application by [redacted]. The TMS software product required [redacted].
These occurred because the Postal Service did not identify and resolve program issues before national rollout. Specifically:
- Management oversight and control over the program needed improvement.
- The software used to generate the weekly manifests contained some errors such as trip miles, travel times, line of travel, sorting, loading and unloading times, and types of equipment needed to transport mail volume.
- Data in the Shipment File Web application contained some errors. For example, the container capacity for Priority Mail used the incorrect container-to-pieces conversion rate. Additionally, the weekly forecasted mail volume did not always meet the variance thresholds of 10 percent.
- Some HCR suppliers and site personnel concerns related to manifests and supplier payment issues were not addressed and resolved timely.
- Payments to HCR suppliers participating in the program were manually processed and the methodology for calculating these payments was inconsistent and inaccurate. In addition, some payments were not processed timely.
Additionally, we found the Postal Service did not accurately measure the six program KPIs to reflect the actual initiative performance.
We determined that in FYs 2017 and 2018, 25 of the 34 DRO sites (or 74 percent) paid an RPM higher than they did under the previous fixed-price contracts. The overall RPM increased by 9.3 percent and did not achieve its planned national performance goal of a less than 8 percent increase. Additionally, while mileage was reduced by 7 percent, this was well short of the 12.5 percent mileage reduction goal.
Furthermore, in FYs 2017 and 2018, the Postal Service did not achieve the projected savings of $22.38 million, instead, the program incurred an additional $3.40 million in transportation contract costs for the 34 DRO sites. The Postal Service imputed indirect savings $8.54 million by applying inflationary factors to the RPM and fuel cost recovery, resulting in net imputed savings of $5.14 million. However, we determined the Postal Service used incorrect and inconsistent savings calculations by applying the inflationary factors overstating the imputed savings by $2.07 million.
Consequently, the Postal Service incurred questioned costs of about $16.36 million annually in FYs 2017 and 2018 for capital investment costs related to implementing the initiative.
During our audit Postal Service management provided additional documentation on steps they have initiated in FY 2019 to improve program implementation issues and concerns. For example, in March 2019, the Postal Service appointed
an acting national program manager for the program. In addition, they developed a new Help Desk process using the Service Now System to track questions, problems, and concerns from DRO sites. Further, as of August 13, 2019, the Postal Service stated that five additional sites are reportedly fully optimized to dynamic routing, however we did not verify this information.
What the OIG Recommended
We recommended management:
- Identify and resolve DRO program issues before continuing implementation and the national rollout.
- Provide management oversight and certify the site personnel have updated guidance, procedures, and training on the program.
- Evaluate the data accuracy in the Transportation Management System and Shipment File Web applications and test the functionality of both systems to ensure it meets the Postal Service’s program requirements and the accuracy of the dynamic manifest.
- Continue defining clear and timely communication protocols with stakeholders to ensure concerns with manifests and supplier payments are addressed and resolved.
- Develop an automated payment process to ensure suppliers are paid consistently, accurately, and timely.
- Establish a method for calculating KPIs to ensure the accurate measure of program performance.
- Evaluate the program savings calculation for rate per mile and fuel inflationary factors to ensure accurate calculation of initiative savings.