Audit Report – MS-MA-15-003 – 11/05/2014
Nonmachinable Outside (NMO) parcels are packages that, because of their size, weight, or other characteristics, cannot be processed through automation and must be handled through a more labor-intensive and costly manual process. The term “outside” is used for these parcels because they cannot be placed in sacks or other mailing containers for automated processing.
As part of efforts to optimize the network, in December 2013, the U.S. Postal Service started a 6-month pilot program with an outside contractor in two Network Distribution Center service areas. The objective was to develop, test, and analyze alternatives to NMO processing and leverage the contractor’s automated network to increase efficiencies and improve service. The Postal Service projected it would save [REDACTED] in fiscal year 2014, Quarter 4, by contracting out NMO processing during the pilot program. The contract price was $8.5 million, with projected volume of [REDACTED] parcels.
The Postal Service planned to perform cost-benefit analyses when the pilot was finished to assess the results and determine whether to implement it nationwide.
Our objective was to evaluate the costs associated with the pilot program to process NMOs through the use of an outside contractor. In the future, we plan to evaluate productivity and efficiencies associated with NMO processing.
What The OIG Found
The Postal Service did not consider about [REDACTED] in operational expenses when developing the cost estimates for the NMO pilot program. This figure represents about [REDACTED] percent of the $8.5 million contract price. Specifically, the Postal Service did not account for [REDACTED] in internal labor costs for additional labeling and manual loading or [REDACTED] in additional internal transportation costs to transport NMOs to the contractor. Postal officials told us they were not aware of these potential costs when developing the pilot.
We also noted the Postal Service did not complete cost-benefit analyses when the pilot was done. While we recognize the value and benefits of pilot programs, more thorough expense estimates and timely cost-benefit analyses are necessary to fully and accurately evaluate this pilot program. The [REDACTED] costs were double the anticipated savings of [REDACTED] .
What The OIG Recommended
We recommended the vice president, Network Operations, include all costs, internal and external, when evaluating the results of the NMO pilot and before proceeding with a nationwide program.