26.United Parcel Service

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26.United Parcel Service Powered By Docstoc
					United Parcel Service: UPS Hits the Road with Technology
       United Parcel Service (UPS), the world’s largest package distribution company,

transports more than 4 billion parcels and documents annually. With over 360,000

employees, 1,750 operating facilities, 2,000 daily flights, 88,000 vehicles, and the

world’s largest private communication system, UPS provides service in over 200

countries. (1) How does UPS control such a vast and extended enterprise and still fulfill

its commitment to serving the needs of the global marketplace?

Corporate History
       In 1907, there was a great need in America for private messenger and delivery

services. Only a few homes had private telephones, and luggage, packages, and personal

messages had to be carried by hand. The U.S. Postal Service did not yet have the parcel

post system. To help meet this need, an enterprising 19-year-old, James E. (“Jim”) Casey,

borrowed $100 from a friend and established the American Messenger Company in

Seattle, Washington. Despite stiff competition, the company did well, largely because of

Jim Casey’s strict policies on customer courtesy, reliability, round-the-clock service, and

low rates. These principles, which guide UPS even today, are summarized by Jim’s

slogan: “Best Service and Lowest Rates.” (2)
       Obsessed with efficiency from the beginning, the company pioneered the concept

of consolidated delivery — combining packages addressed to certain neighborhoods onto

one delivery vehicle. In this way, manpower and motorized equipment could be used

more efficiently. The 1930s brought more growth. By this time, UPS provided delivery

services in all major West Coast cities, and a foothold was established on the other coast

with a consolidated delivery service in the New York City area. Many innovations were

adopted, including the first mechanical system for package sorting. During this time,

accountant George D. Smith joined the firm and helped make financial cost control the
cornerstone of all planning decisions. The name United Parcel Service was adopted;

“United” because shipments were consolidated and “Service” because “Service is all we

have to offer.” All UPS vehicles were painted with the now familiar brown color because

it was neat, dignified, and professional. (3)

       In 1953, UPS resumed air service, which had been discontinued during the

Depression, offering two-day service to major cities on the East and West Coasts.

Packages flew in the cargo holds of regularly scheduled airlines. Called UPS Blue Label

Air, the service grew, until by 1978 it was available in every state, including Alaska and

Hawaii. The demand for air parcel delivery increased in the 1980s, and federal
deregulation of the airline industry created new opportunities for UPS. But deregulation

caused change, as established airlines reduced the number of flights or abandoned routes

altogether. To ensure dependability, UPS began to assemble its own jet cargo fleet — the

largest in the industry. With growing demand for faster service, UPS entered the

overnight air delivery business, and by 1985 UPS Next Day Air service was available in

all 48 contiguous states and Puerto Rico. Alaska and Hawaii were added later. That same

year, UPS entered a new era with international air package and document service, linking

the United States and six European nations.

UPS Today
       In 1988, UPS received authorization from the Federal Aviation Administration

(FAA) to operate its own aircraft, thus officially becoming an airline. Recruiting the best

people available, UPS merged a number of different organizational cultures and

procedures into a seamless operation called UPS Airline. UPS Airline was the fastest

growing airline in FAA history, formed in little more than one year with all the necessary

technology and support systems. UPS Airline has become one of the ten largest airlines

in the United States. UPS Airline features some of the most advanced information

systems in the world to support flight planning, scheduling, and load handling.

       Today, the UPS system moves over 13.3 million packages and documents daily

around the globe. UPS picks up from 1.8 million customers per day and delivers to 6.1

million customers per day. Packages are processed using advanced information

technology and are transported by the company’s own aircraft, chartered aircraft, and a

fleet of delivery vehicles. (4) The United States and international package delivery

operations constitute a substantial segment of UPS’s business. Another growing and

important segment is the company’s non-package unit that focuses on supply chain

solutions for UPS customers. (5) Today, UPS emphasizes its customer service orientation
with the advertising slogan: “What can brown do for you?”

Innovations at UPS
     Known for its technological innovations, UPS keeps its package delivery and non-

package operations on the cutting edge. Tom Weidemeyer, chief operating officer of

UPS, says that UPS likes to take the really long-term view about investments in its

infrastructure. Technology at UPS spans an incredible range, from specially designed

package delivery vehicles to global computer and communications systems. For example,

UPSnet is a global electronic data communications network that provides an information-

processing pipeline for international package processing and delivery. UPSnet, which has

more than 500,000 miles of communications lines and a satellite, links more than 1,300

distribution sites in 46 countries. The system tracks 821,000 packages daily. (6)

     UPS Worldport is the latest example of technology being used to increase

efficiency and quality in the company’s package operations. Located in Louisville,

Kentucky, Worldport is a 4 million square feet facility outfitted with “overhead cameras

to read smart labels and process documents, small packages, and irregular-shaped objects

with astounding speed. Equipped with more than 17,000 high speed conveyors,

Worldport is capable of processing some 84 packages every second and can be expanded
to handle nearly 140 packages per second  or more than 500,000 packages per hour.”

(7) Worldport can also consolidate more volume at a single location, thereby enabling the

company to use larger and more efficient aircraft and streamlining sorting at regional

hubs throughout the world. (8)

       UPS Supply Chain Solutions  the company’s non-package operation  is

targeted toward a variety of supply chain challenges faced by customers, including but

not limited to helping customers in managing overseas suppliers, post-sales servicing of

parts logistics, and order processing. This operation also coordinates transportation,

vendors, contracts, and shipments, and simplifies international trade and regulatory

       UPS Supply Chain Solutions relies on a physical and virtual infrastructure for

managing the flow of goods, information, and funds for different customers. For

example, UPS developed an integrated supply chain with advanced automation to enable

Honeywell to provide efficient and rapid order processing and delivery to the North

American automotive aftermarket. Another supply chain solution was provided to

TeddyCrafters, thereby enabling it to better manage the transportation and distribution of

supplies from Asian and United States vendors. UPS designed a comprehensive inbound

distribution system for TeddyCrafters that improved inventory management and provided

for weekly restocking of the chain’s retail stores. Still another supply chain challenge was

solved for Tokyo Electron America. UPS implemented a field restocking network that

provided real-time inventory management. In all these cases, and many others, UPS uses

it own technological expertise in the transportation and distribution of documents and

packages to help other companies achieve efficient, rapid, and low-cost solutions for all

stages of their supply chains. (9)

Three Trends Driving the Industry
       Frederick Smith of FedEx, a UPS competitor, identifies three trends driving the
package delivery business: globalization, cost cutting, and Internet commerce.

Globalization will cause the world express-transportation market to explode to more than

$150 billion. While DHL Worldwide Express is a major player in the international

market, UPS and Fed Ex are expanding at a rapid pace. Lee Hibbets of Air Cargo

Management Group in Seattle states that: “FedEx is seen as more aggressive, whereas

UPS is a little bit more methodical and long-term.” Cost cutting among customer firms

— primarily by cutting inventory — fits into the package firms’ delivery systems.

Technology plays a significant part in package delivery companies’ capabilities to assist

customers in cutting their inventories. UPS and FedEx are competing fiercely in using
technology to facilitate cost cutting efforts. Internet commerce, the third trend, generates

a huge need for shipping. Package delivery companies hope to capture the lion’s share of

the Internet commerce shipping business. (10)

       It remains to be seen who will win out in the package delivery wars, but FedEx

and UPS are both leaders in the market. Their ability to track packages around the world

is a testament to the value of technology in the workplace. With technological

innovations generating higher productivity, the future for package delivery remains

bright. Moreover, with attention being given to the challenges of supply chain

management, package delivery companies can apply their technological expertise in

developing additional business opportunities.

Case Endnotes

1. United Parcel Service 2002 Annual Report, 20.
2. United Parcel Service homepage,
3. Kamuf, Rachael. “UPS Upping Employment as well as Technology,” Business First,
    March 9, 1998.
4. United Parcel Service homepage, op. cit.
5. United Parcel Service 2002 Annual Report, 7.
6. United Parcel Service homepage, op. cit.
7. United Parcel Service 2002 Annual Report, 13.
8. Ibid.
9. United Parcel Service homepage, op. cit.
10. Walker, Karen. “Brown is Beautiful,” Airline Business, November 97: 46.


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