Reference no: EM133142666

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 compliance.

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.

Questions

1. Two key elements of the New Economy are globalization and a technological-driven society.  How has UPS managed to thrive in these two areas?
2. If an organization is "a collection of people working together in a division of labour to achieve a common purpose", then describe with an example how UPS satisfies this description.
3. How has the changing nature of organizations affected UPS?  In other words, how has UPS changed or which elements have they clearly embraced that have allowed them to stay successful? (refer to your class note)
4. How does technology enable UPS to be a quality-driven organization?
5. How do you feel UPS approaches customer relationship management?  Would you say they employ a Total Quality Management (TQM) philosophy?  Support your opinion with details.