Chapter 1: Introduction
As businesses today navigate a more complex and dynamic environment, it is increasingly becoming almost impossible to achieve their strategic business objectives, and stakeholders' satisfaction. A survey of business leaders of Top FSTE 500 Organizations had unanimously agreed that Technology has played a significant impact in their business operations and profitability. As globalization had erased geographical boundaries and both national and international competition has exponentially increased, most company is far more reliant on IT systems to drive business performance.
Reasons for choice of topic
Information and Communication Technology is considered a strategic resource that enables automation, monitoring, analysis and coordination of business activities to support the transformation of business processes.
This insight is key to my desire to choose United Parcel Service (UPS) as a case study to buttress the point of how technology has transformed a one person business idea to a global leader. Though UPS had grown through merger and acquisition over the years but its underlining growth stems from the use of technology to transform its business and operational processes. UPS has grown from a very small beginning to an International conglomerate with a sustainable brand and business model that is now a case study for strategy and management implementation.
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UPS is vulnerable to trends in economic activity because its primary business is to transport goods, so business levels are directly tied to the purchase and production of goods therefore the present economic slowdown has direct impact on business level. In addition, they have a relatively high fixed-cost structure, which is difficult to adjust to match shifting volume levels. In my strategic view, the present globalization and economy imbalance dictates the need for a company that would deliver high performance with the ability to sustain its business model and maintain a strong financial position.
Project Aims and Objectives
- Highlight the most recent technology innovation in UPS, showing the benefits and opportunities created
- To assess the important contribution of technology to business activities in UPS
- Review the impact of technology-enabled cost saving approaches to a business bottom-line and consider its effect to other stakeholders such as the environment
- To use the Balance Scorecard to analyze the four perspectives of UPS current position
- To analyze the strategic position and future of UPS using SWOT Analysis
The Background of UPS
Founded in 1907 by an enterprising 19-year-old, James E. ("Jim") Casey, who borrowed $100 from a friend and established the American Messenger Company, now UPS has grown into a $49.7 billion corporation clearly focusing on its goal of synchronizing global commerce. Today UPS is a global company with one of the most recognized and admired brands in the world. UPS has become the world's largest package delivery company and a leading global provider of specialized transportation and logistics services. Every day, it manages the flow of goods, funds, and information in more than 200 countries and territories worldwide.
It serves air, ground, domestic, international, commercial, residential customers through its world-class integrated delivery service system which success differentiates it from any of its competitors. UPS serves 1.8 million shipping customers a day by providing delivered packages and 6.1 million consignees in more than 200 countries and territories. The company on an average delivers 15.75 million pieces per day and a total of 3.92 billion packages around the world. It operates its global brand through a ground fleet of over 100,000 vehicles and 600 airplanes.
The company operates through three reportable segments namely;
The U.S. domestic package operations segment provides guaranteed, time-definite delivery of packages through its unique integrated air and ground network.
The international package operations segment provides delivery of small packages and letters to more than 200 nations and territories through an integrated air and ground network. It is principally specialized in providing export services across the country boundaries and also provides domestic services via shipments within the nation's borders.
Freight forwarding and logistics businesses meet customers' supply chain needs through a portfolio of services which includes; freight forwarding, logistics and distribution, international trade management and UPS Capital.
UPS Core Objectives
- Synchronize global commerce through the composite management of the three flows of commerce; goods, information and fund without creating a distinction in such services
- Time- definite delivery of letters, documents and packages via an extensively integrated air and ground network
- Continuous Improvement on operations and processes to enhance efficiency and effectiveness, thereby saving cost for better and cheaper service
- Evolution of 'What Can Brown Do for You' and service one-to-one
Chapter 2: Information Gathering
Always on Time
Marked to Standard
Curtis (1998) defines information was defined as data processed for a purpose. Information consist of organized facts and figures that have meaning within the context that the information is intended to be interpreted by people. It is important information kept current, accurate and complete, so as to give a valuable interpretation.
Sources and gathering of information
According to O'Sullivan and Rassel (1995) sources of information could be classified into primary and secondary sources. Primary sources of information enables one to have access to original and unedited information from the source while secondary source are referenced to as a second hand version of information which might have been either edited or reformatted Secondary source such as internet, annual reports, journals and textbook was mainly used for this project. The main reason for my choice is the fact that 'there are usually no costs associated with the use of existing records'
Sources of information
- Annual Accounts of UPS 2006 - 2008
- Annual Accounts of FEDEX Corporation 2006 - 2008
- Academic and business journals
- Business and Technology Books
- Analyst Reports
Analytical reports prepared by independent and unbiased specialist broaden my view on opinions on stock price volatility and other factors beyond my scope. The analyst are particularly more accurate and could generate historical and future projections by use of more robust analytical and scientific techniques.
Method used for data collection
- Library Research.
- The press and internet
This was the primary method used to gather data. The library visited was the British Library (Euston) which has a large collection of books, financial journals, and magazines. The database was quite useful and time saving due to the ability to assess over 30million private and public companies, provision of relevant news analysis and also generate industry and competitive overview of over 15,000 company profiles. Particularly relevant to the report are One Source, Datamonitor, Key Note Publications.I appreciate the level of research knowledge I acquired through the library.
Extensive reading was done around the topic area through financial and technology newspaper and magazine, also the internet was also of immense use throughout the course of the research analysis.
Business Analysis Model
- Balance Business Scorecard model was used to provide a comprehensive framework for translating a company's objectives into coherent set of performance measures. This focuses on four different aspects of performance and address key questions for each ;
- SWOT ANALYSIS: A competence resource test was done to assess the strength and weakness inherent in UPS as well as an external assessment to review the opportunities and threat within the industry.
Limitations and safeguard measures
- Restriction in undertaking a detailed Cost Benefit Analysis of the key technology implementations in UPS operations due to unavailable data for the actual total cost , however I detailed the technology benefits accrued on such projects.
- Financial reporting year end of FEDEX used for comparism is 31st May as opposed to that of UPS 31st December.
- Time and word constraint of 6500 words limited the extent of my analysis and the level of detail I intended to achieve a more decisive conclusion
- The reporting categorization were a little different for Income Statement and Balance sheet
- Data used are historical and past transaction, so more recent information might limit its reliability
- Financial statements are subject to manipulation and from which ratios are extracted therefore reduce the reliability of ratios analysis.
- Risks are never the same, even in companies within the same industry, therefore the ratio comparison with other companies may be less reliable.
- BPP (2007) state that ratios are influenced by the choice of accounting policies.
- Figures were approximated in order to round up to the nearest million (£m) ,and approximation does not necessarily mean the exact figure
- Having a biased mind set opinion before starting the project, also limitations might arise as a result or possibility that improvement in academic result might have been due to the novelty effects, changes or alterations.
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However the legal obligation of listed companies and also in accordance with the corporate governance ,which involve the use of external auditors to give a true and fair opinion on the financial report of companies actually give a considerable assurance and limit the doubt of these reports.
Also, I took extra care when inputting data into the system for analysis which was later reviewed to limit the instance of any error.
Chapter 3: Analysis
CEOs are moving aggressively toward global business designs, deeply changing capabilities and partnering more extensively. According to IBM (2008), CEOs have moved beyond the cliché of globalisation, and organisations of all sizes are reconfiguring to take advantage of global integration opportunities .They are also more global in their business designs, partner more extensively and choose more disruptive forms of business model innovation.
This trend agrees with UPS strategic acquisitions and technology investment over the years to further enhance it as the global leader and achieve its objective to synchronize global commerce.
To fully comprehend the emergence of UPS into a global commerce enabler, I will focus on key implementation of technology which has made it possible to operate a high global platform and better service its customers need one-to-one. I also aim to show the inter-connection of the various technology and its interplay in the achievement of UPS objectives. It will be interesting to run through the most significant innovative technology experience in UPS.
Delivery Information Acquisition Device (DIAD)
As the market volume increased over the years, UPS had to develop new technology to maintain efficiency, keep prices competitive, and provide new customer services. The handheld Delivery Information Acquisition Device (DIAD), carried by over 100,000 UPS driver, was developed to immediately record and upload delivery information of about 15million parcel to the UPS network. The DIAD information includes digital capture of a recipient's signature, thus giving customers valuable, real-time informationabout their shipments. This proprietary device also allows drivers to stay in constant contact with their headquarters, keeping abreast of changing pickup schedules, traffic patterns, and other important messages. This is particularly important because information obtained on the field by over 100,000 UPS drivers is immediately uploaded through the Global Positioning System (GPS) technology which is implemented on the device.
The information transmitted to the database provide needed logistics preparation for the packages much before getting to the sorting site, this allow packages to be sorted in approximately within 15 minutes. Due to the advance notice feature of the UPS network, clearance preparation begins while the shipment is still in transit therefore UPS can provide seamless process and quick customs clearance that is crucial to on-time delivery.
Package Flow Technology (PFT) system
In the early 20th century, UPS pioneered the hub and spoke model for package delivery operations. In this century, UPS continues its innovative tradition with the development of package flow technologies. A suite of software and hardware designed to give the company competitive edge, package flow technologies ensure UPS has unparalleled small package operations - optimizing the delivery of multiple services to customers (air, ground and international) out of a single delivery vehicle.
At the heart of PFT and all of UPS's package operations - is Package Level Detail, or PLD, or 'smart label'. To achieve automation required and efficient information about a package, UPS made a transition from paper to digital.
It also contains a host of information, imbedded in bar codes and the unique UPS "maxi code," that ensure the package gets to its ultimate destination on time. This is very important because, unlike other carriers, UPS delivers multiple services using the same driver.
EDD (Enhanced DIAD Download) is a piece of internally-developed software that enables an electronic manifest to be downloaded into the driver's DIAD before the daily runs.
- Package flow technologies synchronize package information with UPS's corporate databases so that customers have the latest package tracking information available.
- The fully automated process allow the driver know exactly how many packages are in the back of the package car and the exact order all packages need to be delivered to ensure that all customer service levels are met.
- Creates a dispatch plan that helps package center management ensure that drivers are not over-dispatched and that last minute load changes to a driver's package car are minimized.
- Maps out routes that minimize the number of left turns the driver has to make, according to UPS, avoiding left turns at intersections reduces idling which in turn lowers fuel consumption.
- Customers ultimately take advantage of more customized service offers, such as in-transit rerouting - the ability to re-route the delivery of a shipment already on the road
- UPS (2008) states that the DIAD alerts the driver with an audible alarm if a driver is about to deliver a package to the wrong customer, or is forgetting to deliver one of a group of packages to a customer.
Once completely implemented, package flow technologies will reduce the mileage of package cars by millions of miles each year and is expected to save UPS millions of gallons of fuel annually. "It seems small, but when you multiply it over 100,000 vehicles making nearly 15 million deliveries every day during the course of a year, it surely adds up.
Handheld sp400 All-in-One
UPS collaborated with HP to develop scan-and-print solution to integrate a 2D barcode imager, inkjet printer and wireless communication in one device that prints millions of sorting labels directly on packages, customized business application was built to support the device.
The device obtains the proper sorting information from a UPS database via a Wi-Fi network inside the facility, then prints those instructions directly onto the package using a specially formulated, fast-drying HP ink. Training employees to use the new device is fast and easy since the training "manual" is a single page.
- Unlike the former fixed solution of thermal printer combined with PC, monitor and scanner, the light weight device can be taken to packages
- Increased efficiency and effectiveness through improved workflow resulting in saved labor more than 92,000 hours with estimated $16.9 million by 2013.
- Projected capital cost savings of $11.8 million, consumables cost savings of $1.9 million by 2013.
- Reduced environmental impact of 1,338 tons of paper saved compared to paper labels backed with liners, which ultimately turned into garbage.
- In addition to replacing the current bulky set up, the HP solution also improves processing time and reduces the rate of mislabeled packages to virtually zero.
- The device re-engineered the previous complex workflow with multi point of error and high labor turnover due to de-motivated staff caused by fatigue and work pressure into a seamless and efficient operations of unload, scan and sort.
Other recommended Industry usage of HP Handheld
Warehouse/distribution center : Picking and sorting, consolidate scanning, labeling and routing process exceptions for products that don't fit within existing processes, Reduce delivery time.
Airlines : Improve passenger experiences through reduced customer waiting time, Enhance security with unique identifiers onto a boarding pass, reduce and prevent baggage mishandling.
UPS Airlines was the fastest-growing airline in FAA history, formed in little more than one year with all the necessary technology and support systems. Today, UPS Airlines is 9th largest airlines in the United States. UPS Airlines features some of the most advanced information systems in the world, like theComputerized Operations Monitoring, Planning and Scheduling System (COMPASS), which provides information for flight planning, scheduling, and load handling. The system, which can be used to plan optimum flight schedules up to six years in advance, is unique in the industry.
In today's world of rising prices, it's more critical than ever to operate efficiently, 'this is a business of pennies' a few pennies saved on millions of packages a day makes all the difference (Oz Nelson, former CEO).
Fuel Conservation Program
UPS continually evaluates technologies and procedures that will improve environmental performance around the world. Fuel management and conservation is one of the many ways we provide optimal service and value to our customers while minimizing our impact on the environment (Capt. Tom Olson, UPS Flight Operations fuel manager).
UPS implemented a fuel conservation program to significantly reduce fuel consumption and emissions and save the company millions on its fuel bill each year. These innovative and aggressive initiatives demonstrate that environmental concerns are a core part of UPS's daily activities and engineering processes. Part of the procedures implemented includes;
- using only one engine during taxiing
- having more UPS airplanes use electrical power from buildings and in-ground electrical hook-ups instead of the aircraft's auxiliary power unit, which is powered by fuel
- slowing down flights to the most fuel efficient speeds where arrival times are not critical to making service commitments.
UPS is also testing and has implemented several innovative technology programs that are proving to be successful in conserving fuel and reducing emissions.
ADS-B: In coordination with the FAA, UPS is testing Automatic Dependent Surveillance - Broadcast (ADS-B) technology on all of UPS's 757 and 767 aircraft. Among other things, this technology allows:
- 10 to 15 percent increase in landings per hour
- fuel savings of 1 million gallons a year
- 30 percent reduction in noise; and, a
- 34 percent lower nitrous oxide emissions.
UPS is the world's only fleet equipped with the advanced technology.
Lido: UPS Airlines is the first U.S.-based carrier to use the Lufthansa Systems Lido Operations Center, a flight planning system which calculates the most efficient route between two points, based on weather, winds, terrain and other factors.
CDA: UPS also is testing the effectiveness of continuous descent approach (CDA) rather than stepping down altitudes when landing. With CDA, planes use idle power to glide down, which makes less noise, burns less fuel and creates fewer emissions. UPS expects to have operational approval from the Federal Aviation Administration (FAA) to implement CDA for several flights to Louisville by the end of the year
UPS Logistics Group
As UPS management saw it, the company's expertise in shipping and tracking ,its strong infrastructure base coupled with the fuel / emission conservation initiatives, better positions UPS to become an enabler of global commerce, and a facilitator of the three flows that make up commerce: goods, information, and capital. UPS strategically diversified by acquiring existing companies and create new kinds of companies that didn't previously exist, UPS sought to serve its customers in new ways by providing a unique global supply chain management solutions and consulting services which allowed its customers to better serve their own customers therefore focusing on core competencies.
UPS has a comprehensive information technology network which capture real-time information that helps the visibility of the movement of goods and packages. They support everything from dispatch/tracking to real-time transfer of funds.
UPS Logistics embedded, suite of application on its database to increase supply chain visibility to monitor critical consignment and proactive notification, quick transmission of information needed for custom clearance, speed up cash flow processing through its Paperless Invoices. Global transactions are made possible through UPS own developed software which some are already patented, examples include: Flex® Global View, UPS Quantum ViewSM , UPS CampusShip™, UPS Returns on the Web.
Through UPS Product Provider Program, more than 80 software developers have embedded UPS shipping tools in their products, from enterprise resource planning to accounting, customer relationship management, shopping cart and e-commerce systems, extending access to UPS visibility tools to thousands of additional businesses around the world ,this confirms UPS as one of the highly desired partner for businesses.
The diversification into logistics has created new revenues making 17.3% of the total turnover resulting in $8.9 billion in 2008, an increase of 5.8% 2008/2007 and 5.3% 2007/2006. FEDEX Freight revenue was $4.9 billion in 2008, an increase of 7.5% compared to 2007 and 25.8 % for 2007/2006.Both revenue increase confirms the high potential of the segment. This indicates that with the right infrastructure companies can leverage on the use of technology to increase shareholders value and attain leadership position in any industry.
Balance Business Scorecard
Kaplan and Borton (1996) define a balanced score card as the strategic balance sheet of an organization as it captures both the financial and non-financial components of strategy. Paul and Yeates (2006) state that it supplements the financial measures with three other perspective of organizational performance- customers, learning and growth, and internal business processes, all of which connects to the vision and strategy of the organization.
Financial Performance Perspective
Key Performance Indicators
- Cost Structure
- Profitability ratio
- Return On Capital Employed (ROCE)
- Gearing Ratio
- Dividend Paid (Cashflow Figure)
The total revenue amounted to $51.4 billion, an increase of 3.6% and 8.3% over 2007 and 2006 respectively. The International and Supply Chain showed a good performance of 9.8% and 5.8% respectively over 2007 while US Domestic had a slight increase of 0.9% which is due in part to the economy decline especially in last quarter of 2008.
Compared with its strongest competitor in US, FEDEX, total revenue of $37.9 billion in 2008 marking an increase of 7.8% and 17.5% over 2007 and 2006 respectively. It must be noted that the 2008 result of FEDEX only till May 31st, therefore the full impact of recession experienced by UPS is not reflected.
The total cost expense in UPS is reducing over the years from 71% in 2006 to 50.4% in 2008,the exception in 2007 was due to $6.1 billion one-off payment relating to pension scheme . FEDEX is substantially high at 94.5% in 2008 meaning the extra revenue generated is fully absorbed by higher cost. Except for the one-off pension payment for UPS in 2007,FEDEX has done worse.
Due to the high operating cost experienced in FEDEX, its net income decreased from 5.7% in 2007 to 3.0% in 2008 meaning the 4% revenue growth enjoyed over UPS has poorly managed.UPS has 5.8% increase in net income over 2007,though 8.8% enjoyed in 2006 was dwarfed by only 0.8% of 2007.
UPS achieved a ROCE of 22% in 2008, a relief from 2% in 2007 , the increase is largely due to the decrease in total asset. As opposed to 10% made by FEDEX , a fall of 8% compared to 2007/2006. This is particularly important because, it may generate better return on same asset if service expansion is initiated. There is room for UPS to increase on this value creation,in future its capital investment may just be materializing.
FEDEX has a better cover of its short term liabilities with a ratio 1.35 ,an increase from 1.22 in 2007,however UPS has falling cover from 1.4 in 2006 to 1.1 in 2008.The higher this ratio the greater the margin of safety for short term creditors, but 1.1 is still save in the industry. Though UPS seems to introduce new debt capital in 2007 but the cashflow from operations attained $8 billion
UPS has a gearing ratio of 53%, this is more than thrice its value in 2006, meaning UPS has increased its debt obligation, It is also observed there was decrease in shareholders equity possibly due to stock repurchase. Compared to FEDEX with a low value of 9%,FEDEX seem very conservative on debt financing but no signal of capital optimization like UPS.
UPS has show its investors consistent and improving dividend pay ,though much higher when compared with FEDEX, investors therefore are more happy with UPS. Though FEDEX may claim to invest in the future but CAPEX shows UPS is better invested.
Innovation & Growth Perspective
- Continuous Improvement
- UPS also ascertain every employee is a brand promoter of the culture which exemplify high customer focus through 'What Can Brown Do For You'.There are various training programmes such as UPS Supervisory Leadership and Management Leadership Schools
- Operations Research Division
- The employee-ownership and promote from within model in UPS further underscore its learning initiatives because employees have a commitment to improve on things. Dave Barnes the UPS Chief Information Officer started as a part-time worker in UPS unloading packages on sort, before his current position in technology, he has also worked in operations, engineering, finance. It is noted that 9 out of 12 senior managers worked as part time non-management.
Creating value through highly motivated employees and implementation of technology - enabled processes, UPS has successfully developed and patented about 150 trademarked processes and innovation. Goodwill and intangibles such as capitalized software, franchise right, trade mark, customer list make up 10.8% of the total asset.
Resources such as know-how of the organization, which may include brand recognition, patents, capitalized software and trademarks are mostly derived from the use of technology. This is why UPS remain focused on investing in Capital Expenditure so as to sustain growth and the future of the company. Its noteworthy to point out that investment in Information Technology takes 11% of the CAPEX directly ,however all others still have a very high component of IT/ technology involved.
Intensive training to enhance its core slogan 'Think Global Act Local', equips employees to make good decisions on the spot. The culture in UPS promote collective and individual knowledge capabilities unparalleled ,it is admirable to notice that there are only seventy expatriates out of 67,000 international employees, this explains the power given to managers worldwide.
UPS believes that going forward, interplay between Industrial Engineering and IT would continue to be critical to create a more flexible operating model and a wider range of service one-to-one. The centre, led by Jack Levis and Dr Ranganath work together with mostly youthful math theoreticians to devise and test complex algorithms to figure out new ways for UPS to sate time thereby improving its time dependent process delivery and further enhance profitability through cost savings.
It shows that investment in UPS employer is generating returns exponentially.
Internal Business Processes Perspective
UPS has extensive operations which are supported by its elaborate and effective ground and air network which is integrated across the globe. The network operated by UPS handles all levels of service including air, ground, domestic, international, commercial, and residential, through a single pickup and delivery service system (the only competitor with this model). This unique and integrated global business model accrues several benefits to the company. The various benefits are optimization of network efficiency and asset utilization, cost efficiency, and superior returns.
Changing the behavior of even one person in a corporate environment can be a challenge, persuading hundreds or even thousands of employees is something else altogether. Brewster and Dalzell (2007) state that the hardest thing about managing these events is getting the hearts ,minds, and behaviors of individuals in the organization aligned with the change.UPS has earned a reputation as one of the leading companies in the world, known as much for its innovative practices as its skill in creating satisfied customers and employees.
- Increased Visibility
- Trusted Partner
- The Evolution Of 'What Can Brown Do For You
In response to customers' needs UPS has ensured the highest level of proximity through over 70,000 full-service and drop off locations, (like The UPS Store, Mail Box Inc.),over 100,000 friendly UPS drivers ,shipping function on UPS.com or by using any one of UPS's online products.
UPS was named one of the most reputable global companies, by the Reputation Institute as reported by Forbes magazine. Datamonitor (2008) states that the company was placed at the fifteenth position of the 600 largest companies in the world and sixth on the US listing for having the best corporate reputation UPS is the strongest competitor in the industry with operating cashflow from operations of $8.4 billion in 2008, also carries an AA rating and 46th ranked of Fortune 1000
This is particularly important now as more customers demand for transportation and logistics partner who is financially strong and stable for the long term. It generated a total revenue of $51 billion 35% higher than its closest competitor-FEDEX.
UPS CEO has chartered a new course of direction with the aim to be the first in the industry to serve customers in new ways as one-to-one , a customized service that asks customers 'What Can Brown Do For You. This will mark a new collaboration with customers.
UPS holds a strong position in the market, to avoid obvious repetition, I have discussed earlier some of the key strengths such as extensive operations, integrated global network and financial stability. Here is other aspect that confirms the competence of UPS as an enabler of global commerce.
Long-term industry fundamentals
Datamonitor (2008) states that there are favourable industry fundamentals which play to UPS strengths in expanding global trade, direct-to-consumer shipping, and outsourcing supply chain management. Increasingly, supply chain strategy means that companies are located where the best resources are available, and where the most value can be added to the end product. Today's supply chain leaders are focused on just-in-time ensuring that each component of the value chain arrives at precisely the right location, at the right time, and at the most competitive cost.
UPS is involved in several other law-suits that allege that the company has conspired to fix fuel surcharge rates. The involvement in such legal proceedings will increase the expenses of the company and will also mar its reputation in the market.
In 2008, UPS recorded an impairment loss due to over valuation of UPS Freight in 2005 , this oversight may blemish the image UPS enjoy worldwide.
The sole ownership model exercised with the truck load may cause some pressures with competition in that industry, but considering UPS strength that is immaterial
- There is a new air hub in Shanghai to link the various cities of China with direct services to Americas, Europe and other countries in Asia.
- The company has received an approval to operate six daily flights between the U.S and Japan.
- The new UK hub infrastructure will further supplement its growing strength within Europe and directly compete better with the largest competitor in Europe -DHL ( who recently has less influence in the US market) . UPS has developed an integrated air-ground hub network throughout Europe that will compete for growing intra-European trade flow.
DHL Market Share
DHL Express entered into a tentative ten-year interline airlift agreement with UPS. Under the agreement, UPS is to provide transportation in its air network for all of DHLs express, deferred, and international package volume within the United States, as well as airlift for DHL packages between the United States, Canada, and Mexico. UPS expects the agreement to provide up to $1 billion of annual revenue.
Growth in Online Shopping
According to a study conducted by Forrester Research, reveals that the online shopping will reach $235 billion in 2009 and by 2012 online shopping is expected to reach $334 billion UPS being one of the major players in the packaged delivery industry will largely benefit from the strong growth in online retail sales.
Growth of Air Freight and Logistics Market
It is expected that this market will reach a total value of $164.8 billion by 2012.This sector has been recording strong growth due to strong performance of Asia-Pacific economies particularly China and India. As these two destinations are hubs for low cost manufacturing, the finished goods drive demand for air freight and other transportation in the region. The strong growth of global air freight and logistics market will promote the demand for the company's services. Though there is decline in output presently in both economies.
Sluggish U.S. and Europe Economy
It has also been said that the U.S. economy will grow by a meager 0.6% in 2009. The Real GDP growth of Europe is expected to be 0.2% in 2009. The inflation in the European economy is expected to be around 3%. The slow growth of the two major economies will have a negative impact on transport, packaged delivery, shipping and air cargo industry. This in turn will adversely affect the operations of the company.
Fluctuating Fuel Prices
Fuel cost is the major cost driver for the company, fluctuations in fuel price expose the company to several risks. If the company fails to hedge the fuel price risk, then its operations may be adversely affected. Further rise in aviation fuel will increase the input cost of the company and cause an increase in its total operating expenses. This would affect the profit margin of the company.
UPS is subject to several regulations and policies. The various regulating bodies of the air transportation services require different policies and security regulations, It must be noted that regulations and policies changes over time which requires UPS to remain adaptable.
Chapter 4: Conclusion
Technology is the backbone of everything at UPS, every technology either software or hardware links with the website -which is at the heart of customer's access to the company, UPS.com processes over 18 million customer's transactions daily from package tracking, pickup requests, transit times to data-driven custom clearance. As UPS is committed to its sustainability goal to operate in a socially, environmentally and economically sustainable manner, technology is also the foundation of its fuel and emission conservation target. The sustainability report showing the Key Performance Indicator ( in Appendix) is testimony to success attained in the program.
Through a number of innovative initiatives Technology has enhanced operations in UPS;
- Package Flow Planning which maps out the most efficient route for package deliveries and dispatch planning for package centre management
- DIAD technology underpins the customer's point of contact with over 100,000 UPS drivers enabling instant integration with the database.
- Handheld Paperless Scanner enabled by GPS re-engineered the workflow processes thereby making the scan and load process more efficient and saves labour cost
- Airline fuel conservation program made possible by innovative technology has reduced cost and environmental concerns like emissions
- Telematics combines information from drivers' handheld computers with GPS and automotive sensors to help better manage ground fleet operations by improving vehicle maintenance enhance safety and fine-tune delivery and pick-up service. It will improve on-road performance by reducing vehicle expense, fuel consumption, and carbon emissions.
In today's economy, everything involved in global commerce - the goods, the information and the capital - must flow in a synchronized fashion. UPS is one of the few companies in the world that has the infrastructure, the scale, the financial strength and the expertise to enable such synchronization. The reason why UPS still maintains the global leader is based on its business model of highly integrated network and extensive operations which makes it possible for same driver to satisfy air, ground and supply chain transactions.
Though the present economic slowdown affected the revenue of UPS in 2008 and IMF World economic Outlook 2008, reports a global economy output decline, UPS will mitigate this effects through its diversified extensive operations. As UPS remain focused on the importance to invest for future growth, the capital expenditure spending would accrue competitive advantages for a better future.
- There is evidently cross selling opportunities in order to capitalize on the full complement of UPS services. With the unique business model and extensive operation, UPS can further improve its Asset Utilization and Return on Capital Employed through the cross selling potential.
- I observed UPS maintains a better cost structure than its competitor, FEDEX and I appreciate the sector it's a high fixed cost operator, however it is possible to implement a variable cost structure considering the reported decline in economy output, this will ensure more efficient operations. Part time worker may be increased in this period.
- Due to the exit of DHL Express from the US (though UPS won the contract to provide services for DHL)there is no obvious focus on other services from the customers, unlike FEDEX who is aggressively marketing by providing a link for easy migration from DHL account holders to FEDEX on its website.UPS need to promote its services better.
- The impairment of $548 million on goodwill due to the acquisition of UPS Freight in UK was obviously wrongly valued, a better and more accurate valuation exercise need to be implemented in the future because intangible resources such as goodwill is key to stakeholders reflection on a company.
- The impact of the $6.1 billion due to re-arrangement in pension scheme on the outlook of UPS in the year has a negative expression because it could be thought to be a lost maker instead of making an investment in the employees that maintains the future of UPS. A more proactive approach in earlier years could possibly have spread the impact over a period of years.
In summary, technology has created the needed platform that establish UPS as a industry leader with the infrastructure and competence to synchronize global commerce through time-definite delivery, re-engineering of processes resulting in efficiency and cost savings for customers. The bloodline of commerce - information, goods and funds is now seamless with boundaries fast collapsing. The evolution of UPS line of thought 'What Can Brown Do For You' would see UPS as innovative, adaptive and full of possibilities.
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