IT Delivers For UPS

Dec. 21, 2004
Information technology is the key item in the service company's growth package.

Envision a company that didn't exist five years ago that will do nearly $1 billion in business this year, and you have a picture of UPS Worldwide Logistics. The fastest-growing member of the United Parcel Service of America family, WWL continues to expand its business as a supply-chain outsourcer almost solely through intensive application of information technology. "We see information technology as central to our ability to grow the business and create value for customers," says John Wilson, vice president of marketing and strategic planning at the Atlanta-based unit of UPS. "IT is at the core of our services, and as a logistics provider, more and more information is replacing inventory or assets in the supply chain." While the logistics unit may be the fastest growing in the UPS fold, corporate-wide the $23 billion service organization has left few stones unturned in its effort to leverage information technology to help it expand its existing business, tap new ones, and reach out to a larger customer base. Admittedly, UPS is a service business; it doesn't manufacture a product. But many companies, including manufacturers, can learn from its use of IT to reach a new customer base, strengthen ties to existing customers, and offer new services. One factor that helps in any company's effort to boost sales through IT is the support of top management. UPS senior management each year demonstrates its commitment to aggressively expanding the firm's franchise via the savvy use of IT by allocating plenty of resources to the task. The company spends more than $1 billion annually on technology. "Information technology is the centerpiece of our strategy going forward," says UPS Chairman and CEO James P. Kelly. "Everything we do -- all the growth areas of our business -- involves information. How we link to our customers gives us opportunity to find ways to provide them more services." The advent of the Internet alone has boosted UPS' business and provided it with untold new opportunities for connecting with more customers. "The Internet has helped us, and electronic commerce is going to give the ultimate consumer the ability to have more choices and to do business directly," Kelly adds. "The supply chain is going to change dramatically as a result." Currently, more than half of all UPS shipment-order information from customers comes into the company electronically. That's saying a lot, considering that each day UPS deals with 1.6 million customers who ship 12.1 million packages and documents. In addition to increasing the number of shippers that connect with it electronically, UPS plans to make similar connections to the shippers' customers -- those receiving the packages. "They want to know what they'll be getting on that day," Lacy points out. "That's very important to the customer who doesn't want inventory sitting around." Currently, UPS drivers, after making a pickup, transmit data on the shipment to headquarters by inserting a handheld "delivery information acquisition device" (DIAD) into a holding slot on the delivery truck. UPS also is testing new technology that will enable drivers to transmit shipment information instantly to the company's mainframe computers immediately after entering it into the handheld device. "We are testing wireless transmission of this information via satellite in a couple of markets," says Calvin Darden, senior vice president of operations. "That's going to give us even more speedy information that we can make available to the customers. We've found that the delivery of information is just as important or more important than the delivery of the actual package itself," Darden says. Customers can get shipment-status information by calling UPS' telephone voice-response system and entering their tracking number. Some 40% of customer inquiries are handled this way, Darden says, "so that our customer-service people can spend more time on other [customer] problems." Shippers also can use the Internet to access the UPS Web site ( to obtain shipment-tracking information, as well as to check shipping rates and verify proof of delivery. Web users also can access UPS services via search engines such as Yahoo! and Infoseek. UPS is readying a new Internet-based shipping service to be available in the first quarter of 1999. This will allow anyone with access to the Web the ability to place a shipment order to send a package anywhere in the world. One of UPS' newest services is the UPS Document Exchange introduced last June. This is a secure document-transmission service operating over the Internet that offers customers two levels of encryption, one affording extremely secure transmission and the other a secondary level of security. "While Document Exchange is a small business for us now, it gives us an entree to a lot of new customers," says Darden. Document Exchange uses technology developed by NetDox Inc. and Tumbleweed Software Corp. and can be used to transmit anything that can be digitized. The backbone of all of UPS' information-based services consists of two data centers with more than a dozen mainframes and a worldwide network called UPSNet. UPS, in fact, maintains what it claims is the largest IBM DB2 mainframe database in the world, containing all its package-business information. To connect to that data repository, the company's 329,000 employees use more than 100,000 personal computers, not to mention the DIAD terminals and devices on its fleet of vehicles. Many regular customers take advantage of the UPS OnLine family of electronic services. These are accessed via UPS' own proprietary Windows-based software that runs on a PC or other computer and creates a direct two-way connection between the customer and the UPS database. The service simplifies shipment processing and makes detailed shipment information more readily available throughout the entire shipping cycle. For companies that choose not to use a computer to transmit and access shipment data, UPS has OnLine TeleShip, an automated system using a telephone that stores and accesses shipping data. In the latest wrinkle, UPS systems are connecting directly with major customers' enterprise-resource-planning (ERP) systems. Called UPS OnLine Host Access, the service provides a seamless interface between a shipper's core business systems and UPS' IS network. UPS has given software-connecting data, called applications programming interfaces (APIs), to such leading ERP software firms as PeopleSoft Inc., Oracle Corp., and SAP AG. But of UPS' myriad high-tech activities, those that are making the biggest inroads into new markets -- and fostering the most revenue growth -- are coming out of the WWL unit, which is growing at an annual rate of 42%. "We are offering an end-to-end solution, taking over the warehousing and other supply-chain activities of many companies," says Ken Lacy, UPS senior vice president and CIO. One customer, Gateway Inc., uses UPS WWL to package the various parts of its personal computers before shipping them to a Gateway location for final assembly. "In the past, they had to bring all the components into their warehouse," explains Lacy. "Now we get it all at our location and deliver it to them." The secret to WWL's success is its logistics-oriented technology. The unit has created its own systems specifically designed to handle various aspects of the supply chain for customers, including supply-chain management, warehouse operations, inventory management, transportation operations and management, and return and repair services. If desired, a company can outsource a host of other supply-chain activities to WWL, including order entry, sales projections, MRP, production planning, distribution-requirements planning, and procurement management. WWL's latest IT initiative is to create logistical software tailored for the supply-chain needs of specific industries. Last August, for example, WWL began offering a set of supply-chain systems, including hardware and software, for the health-care industry and targeted for the needs of multiunit hospitals and their integrated delivery networks. Harvey Rickles, head of the WWL HealthCare group, says logistics improvements and related technologies can improve nursing care. For instance, he says, by using handheld scanners, nurses can save hundreds of hours annually on paperwork while improving accuracy of inventory data. "The savings could be achieved through advanced technology, better handling, and inventory management -- practices that actually enhance patient care," he says. In a similar initiative, WWL in September began offering a supply-chain technology package for the wireless industries, including manufacturers of cellular equipment, retailers, and wireless-network providers. Services include logistics such as transportation and warehousing; distribution; sales follow-up activities such as technical repair, warranty management, and direct channel support; customer-service support; and inventory and order management. The idea, says WWL marketing chief Wilson, is to leverage the company's supply-chain knowledge for customers in the same industry. "We recognize that for given groups of customers, there are similar needs and characteristics," he says. "In the past, logistics providers did all customized solutions. We're developing our services so that we have a core business model for certain segments of the market." One company that has outsourced much of its North American supply-chain activity to WWL is GNB Technologies Inc., a manufacturer of lead-acid batteries for automotive, boating, and other markets worldwide. The company contracts with WWL to manage its shipments between plants, distribution centers, recycling centers, and retailers. This includes movement of both new auto batteries and used products destined for recycling and covers both land and rail shipments. Key pieces of WWL's service to GNB are the information systems that allow the battery maker to monitor shipments minute-by-minute as they move through the supply chain. The information helps both retailers and manufacturers prepare for pick-up and deliveries. "Our goals for outsourcing were to leverage the focused expertise and systems provided by WWL to allow freight to be planned optimally and to get delivery and return information quickly," says Bob Weiand, vice president for logistics in the automotive-parts division at GNB in Atlanta. "These activities will result in better and more cost-effective service to our customers." Another customer, AlliedSignal Automotive Products Group based in Rumford, R.I., went to WWL to speed the movement of FRAM, Bendix, and Autolite brand products to customers. WWL is managing the distribution of AlliedSignal products made in North America to more than 10,000 customer locations across the continent. WWL is providing a variety of services, including IT, transportation management, warehousing, packaging, reverse logistics, and fleet management. WWL will manage AlliedSignal's two new distribution centers in Fernley, Nev., and Hebron, Ky. Immediate benefits for West Coast customers include a reduction in order cycle time and state-of-the-art order tracking. "Establishment of these two new distribution centers and best-in-class logistics network will give our customers and us a true competitive edge in the automotive aftermarket," says Brad Hays, senior vice president for sales in the Aftermarket Americas unit at AlliedSignal APG. "Our customers will have what they need delivered to them with unprecedented speed and precision." Features of the newly constructed West Coast distribution center include a high-speed conveyance system with more than 150 electronic eyes keeping tabs on more than one mile of conveyor belts. The facility also has new order-picking technology that efficiently routes workers through the order-fulfillment process. AlliedSignal customers are expected to benefit from improved order accuracy, better line and unit fill rates, and real-time order status. WWL is by no means U.S.-bound. The UPS unit operates a 240,000-sq-ft logistics warehouse and distribution center in Cuautitln, north of Mexico City. "The new distribution site expands our service capabilities to serve many industries with varying size requirements, including automotive, telecommunications, high-technology, and consumer-product companies," says John Maldonado, managing director of WWL in Latin America. The center provides warehousing, pick-and-pack services, and customized value-added logistics. Likewise, at Hamilton Standard's Singapore distribution facility for its 20-plus airline customers in the Asia/Pacific region, WWL operates the facility -- handling, preparing, and delivering thousands of different parts for commercial and military aircraft. Since the distribution center opened a year ago, the division of United Technologies Corp. has seen its order cycle time reduced from 10 to 12 days to one or two days. One of the features customers like about WWL's service is a system called "Event Tracker," which offers two-way communication between the UPS unit and the customer regarding shipment status, problems, and remedial actions. Containing a model of the customer's optimum supply-chain process, Event Tracker notifies WWL operations people via e-mail if, say, an aircraft that took off two hours late is going to make a delivery late. "That gives us a chance to intervene immediately and take corrective steps," says Wilson. The system also can be accessed via the Web by a customer. WWL works closely with a sister logistics service, Sonic Air, when it comes to providing customers with reverse-logistics capabilities. For instance, Sonic Air handles repairs for a personal-computer firm, in most cases fixing customers' machines and shipping them back to the customer within two days. WWL also manages warranty parts returns for General Motors Corp. The logistics outsourcer picks up the parts from dealers and returns them to a warehouse in Detroit where they are collected, collated, held for inspection by GM, and ultimately either returned to the manufacturer or discarded. Obviously, managing GM's parts warranty operation requires having sophisticated information systems in place to track parts through the entire returns cycle. "The information management is absolutely critical," Wilson adds. "It's the lifeblood of our ability to provide the physical services."

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