United Parcel Service, Inc.

(UPS)
(MIS3063 Term Paper Complete, Parts II & III)

Submitted by: Group 4 Chuck Heumander Thomas Slocum Charles Suggs Austen Webber Date: December 2, 2010

The Company United Parcel Service, Inc. (UPS), headquartered in Sandy Springs, Georgia, was founded in 1907 by 19-year-old Jim Casey in Seattle, Washington as the American Messenger Company. The company adopted its current name in 1919 and launched its initial stock offering 80 years later, in 1999. Today, UPS is the nations largest parcel shipping company with annual revenues topping $45 billion, over 410,000 employees and more than 219,000 shareholders. According to Dun & Bradstreet, UPS is the oldest (and biggest) private shipping company, (offering) non-express parcel delivery service to virtually every part of the world. Federal Express (FedEx) is the largest express delivery service, operating more than 500 aircraft and nearly 91,000 vehicles worldwide. Airborne Express (note: a division of DHL), while smaller than its competitors, boasts a private airport in Ohio with its own foreign trade zone and aircraft maintenance center. And although the (U.S.) Post Office (USPS) is a relative newcomer to the express-delivery market, it still boasts the worlds largest delivery organization. (All Business, a D&B Company). Having recently expanded its presence in China with the addition of 101 field stocking locations (FSLs), UPS is well-positioned to continue its worldwide dominance thanks to its strength in China, the worlds fastest growing economy. Industry Analysis The parcel shipping industry is a highly competitive one, albeit one with few major players. Using Porters Five Forces analysis, we see that this industry, at least in the US if not worldwide, has many of the characteristics of an oligopoly.

Bargaining Power of Customers LOW Any given UPS customer, whether small or large, has made a conscious choice among alternatives when entrusting a package to Big Brown. Though the alternatives are low in number, each offers services comparable to those provided by UPS at similar costs and each provide easy access to those services. However, even UPS very largest customers, most of whom already spread their business among the Big Three (UPS, FedEx, DHL, the latter benefiting from a partnership with the USPS), dont make up a sufficient percentage of UPS approximately one million daily packages to dictate prices. All reasonably high volume customers receive better rates than individual, occasional users but even those rates are established by UPS and not necessarily the result of negotiations with or demands from any one, or more, customers.

Threat of Substitutions - LOW With the advent of facsimile transfer (fax) machines and, more recently, electronic document transfer, the overnight document delivery business has taken a hit due to these readily available and easily used substitutions. However, most of that hit has been taken by Fed Ex, not UPS. UPS was, and remains, the leading parcel shipping company with Fed Ex having the top spot in overnight document delivery. Fed Ex has made significant inroads into UPS core business (and vice versa) over the past two decades, making the two more similar to each other than they were in the 1970s and 1980s. Thus, while each has seen some minor effect from substitutions for overnight document delivery, both, but most particularly UPS, has benefited substantially by the explosion in e-commerce all those products sold on the Internet have to be packaged up and shipped out in some manner and, more likely than not, UPS is the primary shipper.

Bargaining Power of Suppliers LOW From cardboard for shipping boxes to jumbo jets for transporting parcels, UPS takes full advantage of the competitive market its various suppliers operate within. Should, for example, Boeing submit a high bid for the newest additions to the UPS fleet of jet aircraft, UPS can turn to McDonnell-Douglas or Airbus (in fact, the company has done just that in the past as its fleet the 8th largest in the world includes aircraft from each of those manufacturers). Due to the sheer volume of its purchases, be it units, dollar volume or both, UPS is far more of a price-maker than a price-taker in its relationships with its vendors. There is one very significant variation to the above UPS/vendor relationship assessment the cost of fuel, particularly jet-A. When the worldwide oil market forces fuel prices higher, UPS can be simply a victim of the market rather than any kind of a price-maker. However, having experienced that uncomfortable scenario in its history (most notably 1973), UPS now routinely negotiates long-term contracts with major fuel suppliers, thereby locking in a price, or at least a price range, that allows it to more accurately forecast its costs. So, even in the volatile market of international oil, UPS uses its size and buying power to its advantage.

Threat of New Entrants LOW While the parcel shipping industry has historically been a profitable one and thus might well be attractive to new entrants, there are some significant barriers keeping those new entrants at bay. Specifically; High Cost of Entry: This barrier is perhaps best illustrated by the price tag for a single, large jet aircraft. The Boeing 767-300 Freighter currently runs about $160

million each; on any given night, UPS has some 140 similar planes in the air transporting packages around the world. While UPS buying power allows it to enjoy slightly lower acquisition costs for such airplanes, this illustration ignores the other 370 or so aircraft it owns or leases as well as all of its 88,000 vehicles and 1,700 facilities worldwide. Distribution Channels: While parcels and documents invariably arrive at a recipients location by delivery truck, almost all of UPS parcels spend at least some time being transported by air. And with any given major or secondary airport having a limited number of TOL (take-off and landing) slots available, a new entrant would find it difficult to acquire the number and scope of slots required to pose a competitive threat. Brand Name Recognition: Its likely that most Americans, when asked about wellknown courier companies, would name UPS, Federal Express (Fed Ex) and DHL. In fact, those three share 86% of the US courier service market; the other 14% is highly fragmented, being served by approximately 11,900 other companies boasting from 1 to 600 employees each. Thus, any new entrant intent on actually going toe-to-toe with UPS (and Fed Ex, and DHL) would incur substantial costs, and take significant time, to build and maintain a new brand awareness. Rivalry HIGH This final force is the one about which UPS must have the greatest concern and, therefore, the one which necessarily dictates its business strategies. If its position in the industry and the value of its brand are not to erode, UPS must be vigilant in anticipating both proactive and reactive moves by its chief rivals, Fed Ex and DHL.

Competitive Strategies Excepting related business strategies such as technological improvements, physical plant expansions, cost control, new market development and overall growth, UPS primary competitive strategies are to; Enhance Brand Awareness: With the establishment of the What can Brown do for you? advertising campaign, UPS stepped into American homes in a new sense. This campaign was more a reactive than a proactive approach by UPS, one seen as necessary to combat the frequent and well-known Fed Ex ads (When it positively, absolutely has to get there overnight). Additionally, UPS has moved into the franchising business to establish UPS Stores in strip and shopping malls nationwide to both boost its brand and make the use of its services more convenient for the individual customer. Unlike the Brown campaign, this was a proactive move, one that Fed Ex reacted to with its purchase of Kinkos. Differentiate UPS from its Rivals: Fed Ex touts speed, typically for the delivery of documents, while UPS, in its newest ad campaign We Logistics, suggests that it

can, and should, play an important cost saving and customer service role in any small or medium-sized business wanting to sell its wares globally. IS Description The world technology headquarters of UPS is located in Mahwah, New Jersey, a town with a population equal to just 6% of UPS total number of worldwide employees and an annual budget that equates to just .08% of UPS annual revenues. Mahwahs location just 30 miles from New

York City and the appeal of its small-town lifestyle, however, make it a sensible location for the nerve center of the nations largest parcel shipping company. There, nine IBM mainframes play a major role in keeping UPS global systems operating around the clock, 365 days a year. Together with six additional IBM mainframes at the companys Windward Data Center near Atlanta, the Mahwah systems, according to UPS, process 27 million instructions a second, track 15.8 million packages each day, coordinate the operations of an entire airline, collect and distribute package delivery data from 97,000 DIADs (Delivery Information Acquisition Device), and connect 156,000 workstations through 11,500 servers. (UPS-The Technology Company That Delivers Packages). UPSs global package database is the largest IBM relational database in the world. Other facts about UPS information systems include; UPS is the biggest user of cell phone minutes in the world The company is one of worlds biggest purchasers of PCs The company employs 4,000 software engineers at the two facilities, which house 5.7 petabytes of mainframe and Unix storage UPS annually invests some $1 billion in customer-facing technology tools and internal technology processes UPS.com, the companys interactive service website hosts a variety of downloadable software options, is available in 32 languages in 107 countries and handles over 17 million page views and 18.5 million tracking requests per day UPS focus on technology is representative of the companys goal to serve its customers better so they, in turn, can serve their customers better.

The Problem Solved With chief rival Federal Express (Fed Ex) and the United States Postal Service (USPS), among others, seeking to make inroads into UPS core parcel delivery business, UPS saw a need to improve both efficiencies and service in the parcel delivery arena. The company felt it was imperative to develop software that would make the routing of parcels more efficient and, thus, save on fuel costs and improve delivery times. The Companys Strategy In order to achieve this goal, the company invested approximately $30 million to create a package-flow system that would allow the deliveries by its 95,000 drivers in the U.S. to be more efficiently planned. The system, based on software written in a combination of C and C++ that runs on UPS existing back-end systems with end users accessing via PCs, is based on smart labels. These labels contain bar-coded delivery information and are printed out by UPS customers. At time of pick-up, the UPS driver scans the bar code using a DIAD which, in turn, uploads the information to the companys delivery centers. There the information collected is used to provide workers with automated loading instructions for each vehicle and to generate a delivery manifest to each driver. Additionally, UPS had identified that left-hand turns on driver routes was a bottleneck, resulting in wasted fuel (while the drivers waited for traffic to clear) and longer delivery times. The package-flow software was designed to map out the routes for each UPS driver so that righthand turns are maximized and left-hand turns minimized. Value Chain Application

Overall, the package-flow system has; Allowed the company to reduce the mileage of its delivery fleet by more than 128 million miles per year, thus saving roughly 14 million gallons of gasoline each year Reduced CO emissions by over 140,000 metric tons per year Enabled UPS to pass on label paper and printing costs to its customers Allowed UPS to maintain competitive rates while simultaneously improving delivery time service IS Evaluation Effectiveness of Information Systems With the largest IBM relational database in the world, 15 IBM mainframes, 2 data centers, and 4,000 software engineers on staff, its reasonable to presume that UPS overall IS is very effective and both a critical and integral part of all operations. More specifically, the packageflow system has been very effective in meeting the goals of cost savings and improved customer service. Benefits of the System The package-flow system, as mentioned above, has allowed UPS to reduce costs substantially. Why just the fuel savings, at an average cost per gallon of $2.50, equates to an annual savings of some $35 million. Added to that are the savings in reduced vehicle maintenance and longer vehicle useful life (thanks to reducing mileage by 128 million miles per year) and from reduced printing and paper costs (as customers now routinely print their own labels. Additionally, UPS has realized benefits by providing customers with quicker, more

efficient delivery times while, at the same time, providing the world at large with the benefit of a significant reduction in carbon emissions. Future Use of the System It is certainly reasonable to expect that UPS will remain as current as is economically feasible with all hardware and software obtained from vendors while also developing internal software as needs arise and new ideas are generated. What Learned from Research Our group has certainly learned a great deal about UPS that no members had an awareness of previously. Specifically, weve learned; That UPS is the nations largest parcel shipping company That UPS has a strong presence in China, home of the worlds fastest growing economy That UPS is now a 103 year old company That UPS lays claim to being the worlds 8th largest airline, in terms of the size of its fleet

Some Surprises Our group was surprised to learn; That UPS is actually a larger company than Fed Ex That UPS was a privately company for the first 92 years of its existence, holding its initial public offering only some 11 years ago That UPS considers details to be so important that it actually determined that left-hand turns by UPS trucks was costly and inefficient and then did something about it!

Works Cited Are There Differences Between Major Shipping Companies? All Business, a D&B Company. 2010 September 22. <http://www.allbusiness.com/sales/internet-e-commerce/845-1.html>. Boulton, William. United Parcel Service: Moving at the Speed of Business. USW Building Success. 1999. 2010 September 13. <http://www.auburn.edu/~boultwr/UPS_Case.PDF>. Brewin, Bob. UPS invests $30M in IT to speed package delivery. Computerworld. 2003 September 26. <http:..www.computerworld.com/s/article/85426/UPS_invests_30M_in_IT_to_speed_package_d elivery> Dempsey, Caitlin. UPS Mostly Right. 2007 December 13. <http://gislounge.com/upsmostly-right/ Devan, Alexis. Macroeconomic Factors of the Package/Parcel Delivery Industry. Associated Content from Yahoo, Business & Finance. 2010 May 6. 2010 September 13. <http://www.associatedcontent.com/article/2949770/macroeconomic_factors_of_the_packagepar cel.html?cat=3>. Gallagher, Thomas. UPS Beefs Up China Logistics Network. 2010 January 14. 2010 September 22. <http://www.joc.com/air-expedited/ups-beefs-china-logistics-network>. Levitz, Jennifer. UPS Leaves Brown for New Love. Wall Street Journal On-line. 2010 September 13. 2010 September 19. <http://online.wsj.com/article/SB10001434052748704621204575487840032479922.html>. Malone, Robert. UPS Targets China. 2010 February 6. 2010 September 22. <http://www.forbes.com/2006/09/29/china-shipping-ups-biz-logistics-cx_rm_1002ups.html>. Rodriguez, Dr. Jean-Paul. UPS: Logistical Management of Distribution Networks. No date. <http://people.hofstra.edu/geotrans/eng/ch5en/appl5en/ch5a2en.html> United Parcel Service, Inc. Form 10-K (Annual Report) for Period Ending 12/31/09. 2010 September 13. <http://secfilings.com/searchresultswide.aspx?TabIndex=2&FilingID=7084810&type=convpdf& companyid=10216&ppu=%2fdefault.aspx%3fticker%3dUPS%26amp%3bformgroupid%3d1%2 6amp%3bauth%3d1>. UPS The Technology Company That Delivers Packages. No date. <https://ups.managehr.com/InformationSystems.htm>