UPS COMPETES GLOBALLY WITH INFORMATION

TECHNOLOGY
United Parcel Service (UPS) started out in 1907 in a closet-sized basement office. Jim Casey and
Claude Ryan—two teenagers from Seattle with two bicycles and one phone—promised the “best
service and lowest rates.” UPS has used this formula successfully for more than a century to
become the world’s largest ground and air package-delivery Company. It’s a global enterprise
with over 400,000 employees, 93,000 vehicles and the world’s ninth largest airline. UPS delivers
15.6 million packages and documents each day in the United States and more than 220 other
countries and territories. The firm has been able to maintain leadership in small-package delivery
services despite stiff competition from FedEx and Airborne Express by investing heavily in
advanced information technology. UPS spends more than $1 billion each year to maintain a high
level of customer’s service while keeping costs low and streamlining its overall operations.

UPS delivers 15.6 million packages and documents each day in the United States and more than
220 other countries and territories. The firm has been able to maintain leadership in small-
package delivery services despite stiff competition from FedEx and Airborne Express by
investing heavily in advanced information technology. UPS spends more than $1 billion each
year to maintain a high level of customer service while keeping costs low and streamlining its
overall operations.

It all starts with the scannable bar-coded label attached to a package, which contains detailed
information about the sender, the destination, and when the package should arrive. Customers
can download and print their own labels using special software provided by UPS or by accessing
the UPS Web site. Before the package is even picked up, information from the “smart” label is
transmitted to one of UPS’s computer centers in Mahwah, New Jersey, or Alpharetta, Georgia,
and sent to the distribution center nearest its final destination.

Dispatchers at this center download the label data and use special software to create the most
efficient delivery route for each driver that considers traffic, weather conditions, and the location
of each stop. UPS estimates its delivery trucks save 28 million miles and burn 3 million fewer
gallons of fuel each year as a result of using this technology. To further increase cost savings and
safety, drivers are trained to use “340 Methods” developed by industrial engineers to optimize
the performance of every task from lifting and loading boxes to selecting a package from a shelf
in the truck.

The first thing a UPS driver picks up each day is a handheld computer called a Delivery
Information Acquisition Device (DIAD), which can access a wireless cell phone network. As
soon as the driver logs on, his or her day’s route is downloaded onto the handheld. The DIAD
also automatically captures customers’ signatures along with pickup and delivery information.
Package tracking information is then transmitted to UPS’s computer network for storage and
processing. From there, the information can be accessed worldwide to provide proof of delivery
to customers or to respond to customer queries. It usually takes less than 60 seconds from the
time a driver presses “complete” on the DIAD for the new information to be available on the
Web.
Through its automated package tracking system, UPS can monitor and even re-route packages
throughout the delivery process. At various points along the route from sender to receiver, bar
code devices scan shipping information on the package label and feed data about the progress of
the package into the central computer. Customer service representatives are able to check the
status of any package from desktop computers linked to the central computers and respond
immediately to inquiries from customers. UPS customers can also access this information from
the company’s Web site using their own computers or mobile phones. UPS now has mobile apps
and a mobile Web site for iPhone, BlackBerry, and Android smartphone users.

Anyone with a package to ship can access the UPS Web site to track packages, check delivery
routes, calculate shipping rates, determine time in transit, print labels, and schedule a pickup.
The data collected at the UPS Web site are transmitted to the UPS central computer and then
back to the customer after processing. UPS also provides tools that enable customers, such Cisco
Systems, to embed UPS functions, such as tracking and cost calculations, into their own Web
sites so that they can track shipments without visiting the UPS site.

A Web-based Post Sales Order Management System (OMS) manages global service orders and
inventory for critical parts fulfillment. The system enables high-tech electronics, aerospace,
medical equipment, and other companies anywhere in the world that ship critical parts to quickly
assess their critical parts inventory, determine the most optimal routing strategy to meet customer
needs, place orders online, and track parts from the warehouse to the end user. An automated e-
mail or fax feature keeps customers informed of each shipping milestone and can provide
notification of any changes to flight schedules for commercial airlines carrying their parts.

UPS is now leveraging its decades of expertise managing its own global delivery network to
manage logistics and supply chain activities for other companies. It created a UPS Supply Chain
Solutions division that provides a complete bundle of standardized services to subscribing
companies at a fraction of what it would cost to build their own systems and infrastructure.
These services include supply chain design and management, freight forwarding, customs
brokerage, mail services, multimodal transportation, and financial services, in addition to
logistics services.

In 2006, UPS started running the supply chains of medical device and pharmaceutical
companies. For example, at UPS headquarters in Louisville, Kentucky, company pharmacists fill
4,000 orders a day for insulin pumps and other supplies from customers of Medtronic Inc., the
Minneapolis-based medical device company. UPS pharmacists in Louisville log into Medtronic's
system, fill the orders with devices stocked on site, and arrange for UPS to ship them to patients.
UPS's service has allowed Medtronic to close its own distribution warehouse and significantly
reduce the costs of processing each order. UPS and other parcel delivery companies are investing
in giant warehouses that service multiple pharmaceutical companies at once, with freezers for
medicines and high-security vaults for controlled substances.

UPS has partnered with Pratt & Whitney, a world leader in the design, manufacture, and service
of aircraft engines, space propulsion systems, and industrial gas turbines, to run its Georgia
Distribution Center, which processes 98 percent of the parts used to overhaul Pratt & Whitney jet
engines for shipment around the world. UPS and Pratt & Whitney employees together keep track
of about 25,000 different kinds of parts and fulfill up to 1,400 complex orders each day—ranging
from a few nuts and bolts to kits comprising all the parts needed to build an entire engine. On the
receiving side of the 250,000-square foot building, UPS quality inspectors check newly arrived
parts against blueprints.

CASE STUDY QUESTIONS

1. What are the inputs, processing, and outputs of UPS’s package tracking system?

2. What technologies are used by UPS? How are these technologies related to UPS’s
business strategy?

3. What strategic business objectives do UPS’s information systems address?

4. What would happen if UPS’s information systems were not available?