c. Postal Service Facilities Workload

3. Supply Management

To increase customer satisfaction and reduce costs the Postal Service adopted the supply chain management (SCM) philosophy and business practices. SCM is a key enabling strategy of Postal Service Transformation, furthering the competitive and business objectives by focusing resources on lowering overall costs.

Through implementation of the SCM philosophy across the organization, the Postal Service has achieved $1.4 billion in cost savings, reductions, avoidances, and revenue since 2000. In 2004 more than $630 million was attributed to SCM activities. Included in these impacts are capital cost avoidance of $125 million in 2004 and $290 million since 2000.

Cost efficiencies and quality management were achieved through cross-functional collaboration within the Postal Service and partnerships with key suppliers. Supply Management focused on leveraging volume through strategic sourcing requirements, instituting standardized requirements based on historic demand, executing commodity strategies, deploying an organization-wide paperless requisitioning system, increasing the number of electronic catalogs within eBuy (the Postal Service's electronic purchasing system), and participating in strategic partnerships.

a. SCM Initiatives

In 2004 Supply Management provided aggressive support for strategic programs across many functions.

The MTESC network realized significant savings by implementing industry best practices in supply chain management, such as performance-based statements of work and reverse auctions. The mail equipment portfolio renegotiated contracts for 14 of the 22 sites, resulting in savings of $10 million in 2004.

Network Operations Management purchased 2,014 7- and 11-ton cargo vans for 150 locations to replace obsolete cargo vans. Through the use of SCM strategies, including online negotiations using a reverse auction tool, and by using existing partnership agreements for purchasing tires and batteries, the team achieved $12.3 million in savings and $6.2 million in cost avoidance.

A cross-functional team developed a protocol for evaluating costly products to identify the best value vehicle parts in terms of cost, quality, and labor. This effort produced savings of $645,897 in 2004.

The Postal Service traditionally purchased air lift capacity to Guam, American Samoa, and Micronesia at Department of Transportation (DOT) rates. DOT rate contracting required separate contracts with numerous small carriers to satisfy transportation requirements. The Postal Service abandoned DOT rate contracting and competitively leveraged volume to reduce air freight costs. The result was the new Continental Pacific Islands agreement with a single supplier resulting in $4.9 million in cost savings in 2004.

The Air Transportation Category Management Center (CMC) and its International Mail Operations functions used a reverse auction tool to obtain air charter mail transportation services for troops participating in Operation Iraqi Freedom. The significant savings realized through this effort are being passed on to the Department of Defense.

The Professional Services Category Management Team joined a cross-functional team to conduct market and price analysis of using independent investigators rather than employees in the EEO investigative process. Outsourcing this function provides better service as it adds to the perceived neutrality and integrity of the EEO process. These actions created cost avoidance of $5.9 million in 2004.

The Mail Equipment Portfolio awarded a contract valued at $370 million for Delivery Barcode Sorter Input/Output Subsystem (DIOSS) Expanded Capability (EC) next generation letter sorting equipment. The negotiation process used a new technique called parallel path evaluation, where proposal development, audit review and negotiation occur in a parallel process, and expedite the contract award. The impact from this project exceeded $21 million.