UPS will have “unprecedented” forecasting capabilities and visibility of expected demand this peakseason thanks to intense collaboration and advance preparation with customers, but the capabilities
will serve it well beyond this winter, the company has claimed.Speaking to analysts following the company’s third-quarter results presentation, CEO DavidAbney said the creation of a “control tower” that the company had invested in and developed inorder to manage this year’s peak season was a “by-product” of the increased visibility that thecompany was going to have this year. But its benefits would be available for the long term.
Although the priority this year was network reliability, following the quality andoperational problems experienced by UPS during last year’s peak season, the work it was putting inalso provided an opportunity for the company to maximise its capacity and yields. This meant itcould take on additional unplanned business – at the right price – if the resources were available,said CCO Alan Gershenhorn.
Myron Grey, president of US operations, said UPS had been working very closely all of thisyear with the company’s high-volume customers to assess their needs for the fourth quarter – aswell as introducing new technology “that will give us a view into what their shipping patterns are.So if they exceed the projected volume quotas that they have given us, then we have an advancedopportunity to go back to them and review what they are giving to us.”
Abney commented: “So, we are going to have a much better idea of not only our volume, but ofthe planning process. If we see that we have capacity on a certain day and we have got a keycustomer that wants to give us more than we forecast, we have this visibility to make thatdecision.”
This applied to shippers that needed to “surge” their volumes up or down in relation totheir forecast needs, he explained. “ So, good visibility and good planning allows us to makedecisions on a day-to-day basis and we see it as a real capability to take care of our customers’needs.”
Gershenhorn commented: “The collaboration with customers this year as well as theforecasting tools that we have in place is unprecedented. The primary focus is on deliveryreliability with the customers. But then after that, certainly that we get paid the right price forthe right volume.”
He continued: “This ‘control tower’ is made up of engineering, operations, sales and revenuemanagement, and we will assess capacity and determine rates and surcharges as needed. But theprimary focus here is on delivery reliability.”
Asked whether this was the first time that UPS had capped its customers’ volumes, CFO KurtKuehn replied: “I think the best way to look at it is a ‘refinement’, and we have increasedvisibility and increased collaboration, both internally and externally.”
Another analyst questioned whether putting so much additional capacity into the network forthis year’s peak season would result in excess capacity afterwards that would put downwardspressure on pricing.
Kuehn responded: “We are seeing continued growth; this is not by any means just a peak issueor fourth-quarter issue. We have shown some of the strongest growth both domestically andinternationally that we have seen in a while.
“So this is not just a peak-season event; it is just that we are talking about peak rightnow, because it is that time of the year. But we think that the changes in e-commerce andomni-commerce are here to stay.”
Abney added: “And you have to remember that some of the capacity that we are putting on thispeak is temporary capacity that we can turn on and off.”
UPS is anticipating delivering more than 585 million packages in December – an 11 per centincrease over 2013. It expects its 2014 peak delivery day to be Monday 22 December, when thecompany expects to deliver more than 34 million packages worldwide – double the 17 million packagesit carries on an average day.
Preparations include outfitting 47 new and expanded facilities and installing flexiblecapacity across its network, the company said.
