Success of Savings Initiatives Has Been Mixed, and Some Reported Savings Cannot Be Validated

The Postal Service has had mixed success in implementing the supply  chain management initiatives we reviewed. However, some of the claimed savings from  reverse auctions were overstated, and we could not validate the  $71.1 million in reported savings and revenue from the national contracts  we reviewed because the Postal Service lacked accurate baseline data on  what had been spent on the commodities before the supply chain  management initiative. Because of the success of this  pilot effort, the Postal Service plans to use the system for all contracts  under the bulk fuel program. The Postal Service claimed  over $5.9 million in savings from these reverse auctions in fiscal year 2003,  but about $2.1 million of these savings are questionable. The Postal Service is not the only major organization that has had  difficulty in tracking what it is buying. In planning these acquisitions, Postal Service  officials often did not proactively explore ways in which to make these  contracting dollars available to small businesses, either as prime or  subcontractors. We could not gauge the effect on small businesses as a  result of the other supply chain management initiatives we reviewed—the  bulk fuel program and reverse auctions for highway contracts—because  contracting officers and highway contractors used incorrect small  business size standards and, consequently, the reported small business  dollar amounts are unreliable. As it proceeds with its supply chain  management initiatives, the Postal Service will have difficulty measuring  the effect on small businesses because its new supplier diversity policy,  while indicating a commitment to increasing contracts to small and  diverse businesses, does not establish targets—such as dollar amounts or  number of contracts—to measure success. Further, there is no mechanism in place to hold Postal Service officials  accountable for implementing the Postal Service’s objective of ensuring a  continuing focus on, and improvement in, its relationships with small and  diverse businesses. Given the lack of targets for small business  participation in the new supplier diversity policy, however, it will be  difficult to hold contracting officers and other key officials accountable  for improving the Postal Service’s relationships with small businesses. Appendix I: Scope and Methodology

To determine the extent to which the Postal Service’s supply chain  management initiatives have resulted in savings, we reviewed the highway  contractor bulk fuel program and reverse auctions for transportation  services and selected five commodities that have been consolidated into  national contracts: corrugated boxes, custodial products, pressure- sensitive labels, retail packaging, and delivery vehicle tires. Postal Service
Why GAO Did This Study

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.

What GAO Found

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.