The UPS strategy is to industrialise the complete supply chain. This means standardisation,integration and geographical expansion, senior managers told CEP-Research.
UPS broadened its core strategy several years ago from wanting to be a pure parcel service intoaiming to cover the entire supply chain. After nearly 100 years as a parcel service, the Atlanta,Georgia-based company, which was founded in 1907, is now implementing this strategy step by step.The core element in the UPS strategy is industrialization of the supply chain, or, as UPS puts it “Synchronizing Global Commerce”. This was the main focus of a recent trip to the company’s headoffice for interviews with UPS CEO Michael Eskew and other management board members.
At first sight, UPS offers a similar range of logistics services as countless other providers:air and sea freight, customs brokerage, full and less than truckload (LTL) shipping, warehousingand parcel distribution. To achieve this product portfolio, the US parcels market leader has inrecent years systematically bought companies like Menlo or Fritz for air and sea freight andcustoms brokerage or Overnite for trucking services. When you look more closely, however, thedifferences to the competitors emerge. UPS tries to standardise each of the individual elements ofthe supply chain and then connect them into one. Two advantages arise from this approach. Firstly,standardisation improves process reliability, speed and quality while it lowers cost. Secondly,integration ideally leads to a fall in administration and controlling expenditure for thecustomers. At the same time, it increases transparency of the total supply chain and enables UPS togenerate information for itself and its customers. In short: one bill, one salesman, one visibilitytool.
One example demonstrates how this industrialisation of the supply chain works. TheCalifornia-based Idea Group creates promotional products for business events such as trade showsand sales conventions. These products are frequently customised with corporate or event logos. Manyof them, like a new line of printable foam sandals, are produced in China. If the goods are notready at the right time and in the right location, they lose their value. But in the past it tookthe Idea Group roughly ten weeks from its order until delivery of the sandals in the USA. Then UPSbuilt its Trade Direct Ocean product into Idea Group’s supply chain. Since then the sandals havereceived a barcode right at the point of production in China. This barcode guides the sandalsthrough the whole transport process – from production to the container, through customs and on tothe ship and then, in the USA, from arrival through to final delivery. This new process saved thecompany 1-2 weeks of supply chain time. The Flex Global View tool enables the Idea Group to seewhere their goods are at any time. If they are needed earlier than scheduled, the goods can bechanged en route from ocean to air freight, or from standard to express delivery within the USA.For UPS, this process means offering individual logistics solutions on the basis of standardizedsupply chain processes. Kurt Kuehn, UPS board member for sales and marketing, says: “We want tosimplify global commerce for small and medium companies.”
To be fully successful with this strategy, UPS has to strengthen its capabilities in four areasabove all:
– Warehouse capacity in booming markets. “The margin in regular warehousing is low,”says Kuehn. But this changes when warehousing is part of a complex supply chain. “In China, wherewarehouses are a strategic element for us, UPS has already built 20 warehouses.” More will followin the years to come.
– A freight forwarding network in Europe. In the USA, UPS bought Overnite, a company for LTLand full truck load services, for more than one billion euros. The acquisition was not to havesecure access to cheaper transport capacity. The main reason was to integrate this product rangeinto the supply chain, which is easier to achieve with a wholly owned subsidiary. UPS does not –currently – have this advantage in Europe and in Asia. The need appear to be more urgent in Europe.
– Systematic enhancement in specific countries to achieve economies of scale in the parceland express business. David Abney, responsible for the international business on the UPS board,indicated that in Europe, Spain, Poland, Czech Republic and Hungary are the countries in focus. “InPoland we already bought Stolica this year.” In the other three countries, UPS needs enhancement.Regarding Russia, however, Abney – who is tipped as the future successor to Michael Eskew – issceptical. “Russia is a land of opportunities and of risks,” he commented.
– Expansion of the retail network under a single worldwide brand. Globally, UPS is presentwith a chain of 5,300 retail shops under the two brands The UPS Store and Mail Boxes Etc. (MBE).Re-branding of MBE shops has started in Canada and a new chain will launch under this name inIndia. This process will continue in other countries. But except for the USA and Italy, the densityof this retail network is not high enough to be used for logistics solutions.
Furthermore, integration of the supply chain elements at UPS has not reached the point that theTrade Direct product can be offered worldwide yet. The service started where customer demand washigh and will be gradually extended around the world. After launching as a product for US importsfrom Canada, Mexico and Asia, it was extended to sourcing in Asia and distribution to 35 countriesand territories in Europe. Priorities for 2006 are integrating US exports to Europe, and imports toJapan and Canada into the portfolio.
UPS is already well positioned to offer a one-stop-shopping solution “for the movement of goods,of funds and of information,” says UPS CEO Michael Eskew. To integrate the movement of funds, UPSbought the First International Bankcorp in 2001. Another important step, from Eskew’s point ofview, was the modernisation of the 42-year-old UPS logo showing a small package. “Our brand washighly fragmented – the parcel service was brown, express centers in blue, other units in yellow.”The new single brand represents, in his words, “the promise to our customers”.
