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Case Study: United Parcel Service, Inc. (UPS)

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In this article, e-commerce management expert Mitchell Levy presents a case study of how UPS transformed itself into a holistic Internet-enabled entity.

This article is excerpted from E-Volve-or-Die.com: Thriving in the Internet Age Through E-Commerce Management, by Mitchell Levy (New Riders Publishing, 2000, ISBN 0-7357-1028-7).

History of Transformation

UPS has been in the package delivery business for 95 years, providing services to businesses and consumers worldwide in more than 200 countries. In 1994, UPS began to investigate the potential of e-commerce and started an internal group focused on enabling e-commerce. UPS redefined its core business and found ways to change its structure and processes, forming new businesses to take advantage of new opportunities.

Products and Services

UPS is in the transportation industry. They move goods, information, and funds between individuals and companies. Their operations provide delivery by land and by air, and they offer services at customer shipping centers, as well as online through UPS.com. They operate in more than 200 countries worldwide, do business in 15 different languages and dialects, and deliver an average of 13.2 million packages per day.

Catalyst for Change

UPS was interested in finding ways to leverage their extensive infrastructure and expertise in basic transportation of goods, services, and information. They wanted to enter new markets and continue to grow. They also wanted to undergo a more fundamental change—to transform their company into an enabler of global commerce.

Vision and Strategy

In 1991, the company's vision was to be "the leading package delivery company." They were able to grow significantly toward that goal, but they weren't satisfied with just that. They wanted a larger challenge for the company. In 1999, they changed their vision statement to "the enablers of global e-commerce." It was at this time that their company purpose (vision), mission, and strategies were redefined as follows:

  • Purpose (why they are in business): To enable global commerce.

  • Mission (what they seek to achieve): Fulfill their promise to constituents by:

    • Serving their evolving needs

    • Sustaining a strong and employee-owned company

    • Continuing to be a responsible employer

    • Acting as a caring corporate citizen

  • Strategy (their plan of action): Sustain the core and create their future by:

    • Investing in the core business of worldwide distribution and logistics

    • Building competencies in the integration of goods, funds, and information

    • Using technology to create new services

    • Attracting talented people

    • Studying customer behavior and anticipating their needs

    • Practicing innovation that leads to growth

    • Developing an environment that enables them to treat each customer as if he or she were the only one

Changes Made/Evolutionary Process

When UPS began the process of transformation, they started at the basic level—taking a hard look at their core competencies and expertise. They also examined the assets in their multifaceted infrastructure, from data communications, to their fleets of trucks and aircraft, to their call centers. They did this analysis and examination with the idea of finding ways to leverage the growing technology and connectivity of the Internet in order to build entirely new subsidiaries of UPS. In the process, they found several gold mines. With additional investment in information technology (at the rate of more than $1 billion USD per year), they were able to transform a very sizable company in record time.

Once they had identified opportunities within their own company and finished their internal analysis, they reexamined the external world to learn more about e-commerce, markets, and their customers. After taking a look at what people were doing with e-commerce in the external business world, UPS decided that their own definition of e-commerce was not about technology, but was about the integration of "bits and bytes with bricks and mortar." They noticed that customers were changing, and the power dynamic was shifting from the sellers (companies) to the buyers (customers). UPS wanted to find ways to provide more access points to that new breed of customer.

UPS also claims that luck and timing helped a great deal. With the surge in e-tailing as well as B2B e-commerce, UPS was in a unique position to meet the increased demand. They were the bridge between the physical and electronic world, with a well-tested and highly reliable infrastructure to serve both of those worlds. UPS was able to foresee the importance of electronic information to the transportation industry. As early as 1985, they began improving their data networking applications to enhance communications with their customers and increase efficiency. For instance, they built up their IT network and database in order to collect and track over 200 data elements for every single package that they ship. With over 13 million packages being shipped every day, that's a lot of data! However, their system continues to handle that level of information exchange. Consequently, they were well poised to help the multitude of new B2C online companies who came to rely on UPS for shipping. UPS was able to offer these new companies tracking services as well. It was as easy as setting up a link to the UPS Web site. UPS also offers a set of transportation APIs called the UPS OnLine Tools that allow businesses to integrate tracking, rating, address validation, and a number of other valuable functions into their Web site. Now, through their eLogistics service, small B2C companies (as well as large companies) can have their own virtual logistics department hosted at UPS.

When UPS redefined its core business, the description included the transportation of goods, but also funds. They wanted a way to leverage their expertise and infrastructure to transfer funds among entities. UPS has always dealt with COD payments, credit risk assessment, billing systems, and cash flow. With the advent of electronic signatures, it's easier to move such services online, and provide that as another service to their B2B customers. UPS has even started UPS Capital, which provides working capital to small businesses. UPS Capital has also applied the Internet to its business, developing online COD receivables-management products and cutting customers' COD receivables wait from two weeks to two days.

Business communication services became another new UPS offering. UPS has significant call center expertise and infrastructure to handle the call volume generated by more than 13 million package deliveries daily. Now that more of their tracking requests come in through their Web site rather than by phone (about 2.5 million requests per day), they have excess call center capacity. They are now offering call center services to their customers, and integrating the call center services with their customers' business infrastructure.

Several of the new and existing UPS services can now be combined. With the new subsidiaries, UPS now has the potential to lease call center capacity to a customer, handle the logistics and related information exchange for all transactions, and then provide fulfillment and shipping to the customer's customers. UPS is already doing this, and an example of one of their customers is Nike.com. All of Nike.com's back-end systems are provided and managed by UPS, along with order handling at a UPS worldwide logistics center, and then on to UPS fulfillment, and some of the shipping as well (depending on the destination). Through creative deployment of its core competencies, UPS has taken on greater pieces of the value web in B2B e-commerce.

UPS has been able to make tremendous strides because of their open and consensus-based company culture. The company is still 99% employee-owned. Executives are willing to listen to ideas from any employee. There are informal and formal ways to bring ideas forward, and employees are encouraged to do this. UPS also seeks good ideas from their customers and partners. It's all about being willing to listen to an idea, regardless of the source, and then having the business savvy and commitment to implement the best ideas. When the e-commerce team started inside the company in 1996, team members from different functional areas were able to get the resources they needed to move forward because the highest levels of management were committed to the cause. There is also a more formalized process for employees to bring forward ideas. Teams such as the e-commerce team, for example, are made up of people from different functional organizations such as IT, sales, marketing, and finance. Once an idea is ready to go forward, the team members begin the process of identifying the stakeholders affected by the new idea and work to get their buy-in first. The idea makes its way onto the agenda of a marketing or management committee, most often made up of these stakeholders. When the committee evaluates an idea and makes its decision to move forward, there is a much greater likelihood that the idea will be approved. This scenario truly represents a self-empowered entity. People tend to support what they helped to create, and every employee is really a stakeholder (and in the case of UPS, they are shareholders as well). This open consensus-based process helps UPS make significant changes in a very short period of time.

In their transformation, UPS also restructured their organization from a functional-based structure to one that is centered on process. They now have organizations that focus on the customer information-management process, the product management process, the customer relationship-management process, the business information and analysis process, and the package management process. These changes did not happen overnight, because the organization was very large. However, the reorganization is already starting to pay off. Development time for new projects has decreased significantly. The focus on process seems to help, at least so far.

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