Canada Post Corporation: Lean in Repetitive Service Operations

Canada Post Corporation (CPC) is the equivalent of the U.S. Postal Service. It has a commercial mandate and leaders at this government-owned corporation operate with the same corporate governance as a private company. The profits are reinvested in the company to secure its ability to grow or are turned over to the Canadian government in the form of a dividend.

CPC has about 57,000 employees with 22 main sorting plants. Customers can access their services at 900,000 points in Canada—more points than all Canadian bank branches combined. They deliver to over 13 million delivery addresses domestically. Their revenues are approximately $6 billion Canadian. In the mid-1990s, CPC began applying lean methods to its sorting and delivery operations. The sorting operations are the central nervous system of the whole process. Mail comes in from all over Canada and abroad, it is sorted, it goes on trucks and airplanes, and it is distributed all over the world.

Before the lean effort started in 1995, the situation was dreadful. The sorting facilities were more like warehouses. The focus in these facilities was on automation and faster sorting equipment. Yet most of the waste was between these value-adding processes and was being ignored. Steve Withers, an executive within Canada Post, held the unusual title of Senior Advisor of Lean. He described the situation as follows:

We had a complete batch mentality in how we laid out our plants. In many cases, we were using equipment that could not be started up until we had a large enough batch. Mail went like lightning through sorting machines—then it was moved and stored; there was very little flow. The engineering philosophy was bigger, faster, and more expensive equipment in plants, which led to incredible point velocities (and more wasteful movement and storage). We had elaborate forecasting and inventory control systems, with people wandering the plant floor to expedite the flow. We color-coded everything to prioritize what to process next. But visibility was terrible and mail was often stored in overhead buffer systems that employees couldn’t see. We had huge sorting facilities—much bigger than needed, populated with fast sorting machines and inventory everywhere. Some plants had thousands of pieces of material-handling equipment. This led to large travel distances, poor quality, and long lead times, but quick sorting.

As it was, CPC ended up going through three stages in its lean transformation. The first was “point kaizen,” trying things here and there at various points in the value stream. The second was a big-picture value stream focus that systematically analyzed the value stream and implemented changes. By 2003 they were starting their journey into the third phase—building a lean enterprise.

In the first phase, applying TPS methods was a process of trial and error—do a project here, apply this tool there—but even then CPC made huge, impressive gains with lean methods. At its Ottawa sorting facility, CPC mapped the current state of the value stream for the facility on a wall, showing how letters, advertisements, and parcels went all over the place in the facility. They discovered that from the moment an incoming letter entered the facility to when it left the facility it traveled 167 meters, was stored and removed eight times, took 26 hours of total lead time to process, and the value-added time of sorting (actual work) was only 12 seconds. In short, according to Withers: “Mail was sorted in seconds, transported in minutes, staged in hours, and delivered in days. The plant was a warehouse.”

As a result, in 1997 the Ottawa facility removed inventory and moved some operations to arrange the equipment in more of a continuous process flow. This was in a three-story facility and they were able to free up enough space to empty out a whole floor of the building. This allowed them to move several letter carrier depots into that space and sell buildings or get out of leases, saving millions of dollars. Among the results:

  • 28% reduction in travel time for the mail
  • 37% reduction in lead time
  • 27% reduction in storage (staging)

Here is another example. In 1996 each area in CPC’s Hamilton mail-sorting facility was a stand-alone work center and supervisors concentrated on completing the tasks in their own areas. The Hamilton facility was operating 24 hours a day, seven days a week, and still not meeting the commitment to postal customers. Finally, out of necessity, a team was formed to fix the process and in 1997 the plant brought in an external lean consultant.

The first objective was to improve the flow from one process to the next. The facility created a continuous-flow cell for processing one type of package, pulling pieces of equipment out of departments and putting them into a flow. It reassigned supervisors from process islands to flow cells. The operation was paced in 15-minute intervals (similar to the Toyota service parts operations, Use Visual Control So No Problems Are Hidden). The result was a huge improvement in flow, but the floor layout still led to excessive material movement. In 1998, the major focus was changing the layout to streamline the material movement within cells. In 1999, the facility expanded the cells to include a large sorting process that was still done in large batch sizes because equipment changeover required 30-40 minutes. A project was done to minimize the changeover activity. By reducing the changeover time to zero, the run batch sizes and the transfer batch sizes were reduced to a fraction of the previous sizes. This allowed much less inventory and thus reduced lead times. In 2000, the focus was on refinement and stabilizing the operation.

Under the unwavering leadership of the Hamilton plant director, Mike Young, there were continuing flow improvements in 2001. But the major emphasis was on the “rate and repair” process. The rate is when people fail to pay postage, so the item has to be rated for the amount of postage due. The repair process deals with items damaged during processing. There was a specialty department that did rating and repair under a batch process. Jim Womack, during a visit, once referred to it as the “parcel hospital.” Items from all three shifts were taken to the “hospital” on the second shift, where three operators did the rating and repair. Items damaged on an off-shift could wait 16 hours to be worked on. Often work was done during weekends. The solution to this problem included creating a mobile rate-and-repair station and staffing each shift with a flexible-sized rate-and-repair team. The result was a space savings and higher customer satisfaction because of shortened lead times. (Note that previous work done on improving flow also meant that there was far less damage—resulting in substantially reduced repair work.)

A transformation of this magnitude even in one facility is not an overnight process and requires a continual cycle of improvement and stabilization. It also requires focused leadership all the way from the top, which CPC had. As a result, today the lean enterprise has become the operating philosophy of CPC and, as it continues to apply it to all its facilities, the benefits are profound. For the past eight consecutive years since starting on the lean journey, Canada Post Corporation has turned a significant profit, far exceeding the profits before lean. In total, it has returned almost $300 million Canadian to the Canadian government in the last five years, and customers are getting their mail faster.