CASE STUDY 1

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 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, and
Android smartphone users. Anyone with a package to ship can access the UPS Web site to track
labels, and schedule a pickup. The data collected at the UPS Web site are transmitted packages,
check delivery routes, calculate shipping rates, determine time in transit, print 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?

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

Inputs:

 Scannable bar-coded label attached to a package with detailed information about the sender,
destination, and delivery time.

 Information from the "smart" label transmitted to UPS's computer centers.

 Data captured by the Delivery Information Acquisition Device (DIAD), including customer
signatures and pickup/delivery information.

Processing:

 Information from the "smart" label is transmitted to one of UPS's computer centers and sent
to the distribution center nearest its final destination.

 Dispatchers download label data and use special software to create the most efficient
delivery route.

 DIAD captures and transmits package tracking information to UPS's computer network for
storage and processing.

 Automated package tracking system monitors and re-routes packages throughout the
delivery process.

 Bar code devices scan shipping information and feed data into the central computer.

Outputs:

 Efficient delivery routes for each driver.

 Package tracking information available worldwide, usually within 60 seconds.

 Status updates accessible to customer service representatives and customers via UPS's Web
site or mobile apps.

 Notifications of shipping milestones and changes to flight schedules.

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

Technologies Used:

 Scannable bar-coded labels.

 Delivery Information Acquisition Device (DIAD).

 Wireless cell phone network.

 UPS's computer centers.

 Specialized software for route optimization.

 Automated package tracking system.

 Web site and mobile apps for tracking and managing shipments.

 Web-based Post Sales Order Management System (OMS).

  Automated email or fax feature for notifications.

Relation to Business Strategy:

 UPS uses technology to invest heavily in advanced information technology, spending over $1
billion each year.

 The technologies help maintain a high level of customer service while keeping costs low and
streamlining operations.

 Route optimization and efficient delivery methods save 28 million miles and burn 3 million
fewer gallons of fuel each year.

 The DIAD enhances driver efficiency and provides real-time data capture and processing.

 The OMS and supply chain solutions enable UPS to manage logistics for other companies,
reducing costs and increasing efficiency.

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

 Efficiency and Cost Savings: The use of advanced technology, such as route optimization
software and DIAD, helps UPS save 28 million miles and burn 3 million fewer gallons of fuel
annually.

 Customer Service: UPS provides high levels of customer service by offering real-time package
tracking, automated notifications, and efficient handling of customer queries.

 Operational Excellence: Information systems streamline operations and maintain leadership

in small-package delivery services despite competition.

 Innovation and Growth: UPS leverages decades of expertise and technology investments to
expand its services, such as running supply chains for other companies.

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

 Decreased Efficiency: Without route optimization, UPS's delivery trucks would not save 28
million miles or burn 3 million fewer gallons of fuel each year.

 Customer Dissatisfaction: Customers would not have real-time access to package tracking
information, leading to potential frustration and increased inquiries.

 Operational Disruptions: Manual processes would replace automated systems, increasing

the risk of errors and slowing down operations.

 Competitive Disadvantage: UPS would struggle to maintain its leadership position in the
industry without its advanced information systems.

 Increased Costs: The lack of information systems would result in higher operational costs
and decreased ability to offer competitive pricing.