UPS operation system and strategy

Executive Summary

UPS, one of the leaders in packages delivery industry, has millions of business transactions every day, across more than 200 countries and territories in the world. Therefore, it’s no doubt to say that UPS manages their company to work smoothly, comprehensively especially in term of operations, is such a big issues for all operation managements. Furthermore, UPS’s successful determinant is that UPS, itself adapts with the highly rate changing of operations environment, especially technology development, is another issue that needs to be considered. 

From these above ideas, I would like to analysis the operation process of UPS, which is a good example of operation management, in the following descriptions. From the above information, we can realize that UPS has a strong and complicated supply chain system. So, UPS a highly recommended illustration of Operations Management Skills in the logistics business industry.

Supply Chain & Freight, International Packages United Parcel Service, Inc. (NYSE: UPS), commonly referred to as UPS, is considered as one of the largest package delivery companies and also a global leader in supply chain management operations.

The company manages supply chains for large and small companies in over 175 countries and territories and has a great number of business units and agencies in different countries which targets different types of customers and provide diverse solutions (including both goods and services) for transport and logistics industry. In addition, in terms of revenues, UPS was ranked 43 among the Fortune 500 list of America’s largest corporations in 2010.

Moreover, the company is included in the Dow Jones Sustainability Index for the seventh consecutive year and the FTSE4Good Index for the fifth consecutive year in 2009. Index Top 50 Global Companies in 2009. UPS was among the 40 Best Companies for Diversity by Black Enterprise Magazine in 2009. It was also among the Top 50 Companies for Diversity by Hispanic Business Magazine and was among the 100 Best Global Brands by Interbrand (ranked No. 31) published in 2009. It was also included in the America’s Top Corporations for Women’s Business Enterprises every year since 1999.

UPS is known as one of the largest package delivery companies in the world, in terms of revenue and volume of transactions:

In the financial year ended on December 2009, the company recorded revenues of $45,297 million, operating profit of the company was $3,801million and the net profit estimated $2,152 million.

The company delivers packages for around 1.8 million customers to 6.1 million consignees in over 200 countries and territories each business day. The company is one of the largest air cargo carrier and logistics provider in Latin America and in the Caribbean.

The Process

Supply Chains Process:

UPS processes highly comprehensive, coherent operation system having the ability to manage each company single factors (or known as a chain in value chain of operations) in the process and ensure all factors in the process working under best performance and continuously enhancing the business performance.

In addition, UPS has been tried to improve all of its factors by applying the latest technologies & innovation in the logistics industry. As regard to human resources, they also provide further training for their employees, managers in such a way that their employees are equipped with necessary skills in terms of job enrichment and job enlargement.

By doing that, business has a great opportunity to work at its best productivity, high quality services and sustain the competitive advantage towards its competitors.

Basically, UPS’s production process has three main components with a high rate of automation. These components are Value creation process, Support process and General Management process.

Value Creation Process : is the main process in which the company moves and delivers from sender to receiver correctly and exactly.

Support Process: is the process of research and apply the new technology in to value creation process that enables value creation process work more efficient and effective.

General Management process: is the vital component of UPS’s operation process, which keeps all the others components such as value creation and support process work well. With a good management style, all their business units can work under a good, effective and efficient manner.

Process Image:

Obviously, UPS has a great integrated system between value creation, support process and general management process. These accompany helps entire production processes to work and improve their performance. At all the points of production process, we can see that there is a mix of human resources, technology and high level management.

Step 1: Collecting the packages from the customers:

This is the first step in the long term travel of packages across the country or even the world.

By using several different collecting methods (directly collect, indirectly collect, post…) the packages are gathered at the local agent hub.

In order to make the transport easier, more correctly, the packages will be classified, separated as 3 kinds of packages such as small, parcel and irregular.

Small: Minute 6:41

Parcel:

Irregular:

Step 2: Input the data of the packages and load it’s to Airplane

6:00 PM: All packages begin to be arranged and sorted based on the services, type and urgency level.

After sorting and arranging, UPS stick a barcode on every single item and this information also is stored, saved in the UPS networks. With this correct information provided by the sorting and stamping, UPS can easily track their packages and minimize the lost, and optimize the planning of delivery in the real-time.

For example:

Information helps the destination local hub has a clear understanding about their works tomorrow and has a good plan such as van arrangement, deliver time and schedule …to deliver the packages.

Information allows the world port track the packages lost in their process, and arrange the loading and unloading time of airplane.

[Support Process] To make sure bar code sticker provides fully information about itself. UPS’s using SMART LABEL marking system, which one have three different type of barcode includes in one sticker. Smart Label provides vital information about the packages such as destination, services, zip code …

8:00 PM: Loading all the packages to the massive shipping container begin and airplane get ready to leave off the local hub to its destination, World Port.

[Support Process] A special type of container is used with the ability correctly fit with Airplane store. Effectively, minimize the gap between two container, and increase the loading space for packages.

Step 3: Airplanes landing and unloading the packages:

10:15PM: Airplane is about to land on the World Port Airport with careful and accurate control management.

[Support Process] Thanks to the new technology named ADIB (Automatic Dependent Surveillance – Broadcast ), UPS can follow the flighting control and training program to keep better command and better control for the airplane. It helps their airplanes safety landing and correctly fit with the time schedule.

11:15PM: All the aircraft landed and parked in their appropriate position for loading and unloading to the container. In this step, we can see that they use not only technology facilities but also a careful and experienced skilled people.

[Support] Moving a tons container is a tough work and takes a long time. However, this work becomes easier with helping of K-loader and Ball Floor. A single person can move tons container easily or even faster.

K-Loader: A special type of truck which is designed to exactly match with airplane loading area and equipped with a strong crane to move a number of containers at the same time.

Ball Floor: is a new invention of warehouse construction. There are a number of floating balls in the floor in which people can move a container weighted tons, easily and correctly.

Chain 4: Sorting and Loading

This step is regarded as one of the most important parts of UPS delivering process and has a highest level of technology & information management.

Entire process holds in a factory which called Worldport, worldwide air hub of UPS, located at the Louisville International Airport in Louisville, Kentucky US. World port is the result of $1 billion, five-year expansion from in 2002 from its factory before. The project is currently the size of 80 football fields and capable of handling 84 packages a second, or 416,000 per hour, with over 20,000 employees.

After all packages unloaded from the container (Can), it then begins its travel inside hundreds’ kilometre of convoyed in World Port. Every type of packages (Small, Parcel, Irregular) has its different process.

Parcel:

Small:

Irregular:

Generally, after cameras reads the code, the packages are sorted, putted on their right place in the huge network of conveyor belts, began its journey right through, never once hit when moving with another package during the way until it finally drops into its designed destination.

[Support Process] With all advantage of technology application, UPS brought to their factory a good automated sorting system. All packages are continuously sorted by their provided code when it travels along the conveyors.

Here is the facility Process Design, which one describes the way all the packages move through World Port and are sorted:

Facility Image

Chain 5: Loading Back to Airplane & Handling to the Local Agent Hub:

After the sorting finished, the packages are basically ready to be delivered to receiver. The entire packages once again are loaded back to airport and take a travel to their destination at the local hub.

[Support Process] As mention above, Flighting control system, Container loading is helping people loading, taking off easier.

Chain 6: Delivery to Receivers:

After the packages arrived at local hub, it begins to deliver to receiver by smaller destination area and with small van or others transportation.

[Support Process] UPS implement the handled equipment (Personal Digital Assistant – PDA ) that provide the van driver have the most optimized deliver plan to deliver packages such as always turn right, avoiding traffic tram points and some others functions for instance digital note, receiver information …

Overall, we can see that UPS process have very high level of high technology implementation and high level of management as well.

Value Chain

From above process we can clearly recognize that movement of the goods and materials such as packages, truck, container, airplane and supporting from management and information technology, through the whole process. However, it will in sufficient if we don’t mention the others part of UPS operation which is also important to UPS operation system. It’s not only physical movements of good, but it’s also in terms of service as well, which is named UPS Value Chain.

Like all others value chain process, UPS value chain process includes supplier, inputs, processes, outputs and post-sale services.

Image of Value Chain Page 23

In the value chain process, when we can improve one component value to become superior value, we can have more opportunity to increase customer perceived benefits in the next step of process and the extraordinary at the result.

The practices of analysing the UPS’s value chain process can allow us completely identify critical factors that help UPS increase its competitive edge. Because in recent years, Customer needs nonstop for good product or good services only, their needs increase dramatically_ they also desire to have a great value services which is worthy to their payments. Therefore, managing the whole value chain process is the unique way that UPS ensure their operation productively provide to customers quality Products & services, increase the customer satisfaction and gradually accomplish Value Proposition.

In additional, Value chain is the straight line process and cover entire business operation. Any problems happen at any points will lead the process to be jammed or bottleneck. So, managing well every single point of value chain process is the most secure way to avoid defects in the process.

Potential Improvement:

From the seeing of videos case, in my personal understanding and researching in packages delivery industry, I would like to give some opinions that might help to improve the UPS productivity.

UPS should use more technology in order to take more advantages.

“Apply Technology is one of the most essential key that business, especially logistics company have to accomplish in order to prevent and sustain the competitive ability from others”

Mike Terzich, senior vice president of sales and marketing for Zebra Technologies, the Chicago-based manufacturer of thermal transfer bar code printers and related label design software.

At Step 1& 2 (Collecting the packages & input packages information)

We can stick the package barcode sticker immediately when we receiver the product at local hub.

The first advantage, we can have an optimized plan for arranging and sorting the product in World Port

At Steps 2 & 4 (Input data about packages & Sorting at World Port)

UPS could use the RFID (Radio Frequency Identification) for their marking instead of bar code. Because RFID uses the radio frequency, the information can be read easier than reading the code by cameras even it is hidden.

Further, World Port Operation could minimize the number of employee for turning the face of the packages up to the right face for which let camera read barcode, and probably help the process work faster.

However, this action has to be considered at financial benefit. Cause the different between RFID (Radio Frequency Identification) Chips and barcode sticker will be excessed the operation benefits.

From the value chain process view point

UPS also need to consider about another components (except production process) such as supplier, input, output and post-sale, because these components are also essential if business want to achieve long-term value delivering.

To be more precise, from the process, UPS should not solely focus on the advantage of technology, they also need to accomplish more advantage from supplier, general management in order to improve its operation performance and also have more chain to improve the current process.

For example:

Managing the supplier relationship generally can improve the business cost and flexibility.

Pre and Post sale services will bring more value to customer who use this services while UPS reputation and customer relationship stronger.

The Competitive Advantage:

Achieved Competitive Edge:

From the video case, I found these competitive advantages that UPS have achieved from its process strategy:

First of all, Time, the factor that more essential in the high rate of competitive environments, in particular US market (Fed ex, US post…). Technology seem to be the best solution for time reduction, cause machines is working more correct and faster than people so UPS can reduce the time that people can short and move the packages such as sorting with the conveyor.

In term of quality, UPS with the latest technology such as Airplane delivery, bar code reading and information system, give their customer an extraordinary service with 12 hours. All the packages separate and deliver to customer faster and more correctly than traditional by using bar code, airplane and smart planning system.

Automated robots, smart label, information database system, airplane delivery… have overall improve quality of UPS services. Innovation is one of important part of UPS process. These above innovations have covered all the production process as a whole and help the process improve it potential as much as possible.

Using technology is such a way that the business process could save cost in term of employee salary, defective fixing and warranty expense … However, a high level of technology also increase of the operation cost which one make the services lesser competitive.

Completive Sustainability strategy:

Beside competitive advantages and disadvantages that UPS had in recent case, UPS also be able to sustain and maintain its competitive advantages, minimize and avoid it disadvantages overtime.

With a great portfolio and

Economics of scale: The Company’s strong market position and large scale of operations enable it to serve a broad range of customers across major international markets and provides it the benefit of economies of scale.

Proprietary learning curve: With a large portfolio of investment and a huge range of employees. They are good learning organization. Employees will be master their experience by work easier than other organization. The process will be faster and more efficiency if they leverage and encourage their working experience.

What do you think is the competitive advantage to the organization of using this process? Can that be sustained over time?

Conclusions

After digging into the organization and its operations, what did y From the video we cannot see the flexible of UPS services. All packages ship in the same they even it’s not

According to Michael Porter, The father of competitive advantages and “Five forces of completive advantages and three generic three strategies”

Supplier Power: is one of UPS’s value chain components. It can help the business have a good opportunity in cost and innovation, Flexibility (differentiation) with their competitors, when UPS can manage a good relationship between it and their supplier such as Airplane manufacturing.

For example: good relationship with supplier such as Airplane manufacturing, van manufacturing or even van tired distributors will let them have more opportunity to improve its cost of operation and provide cheaper services while keep constant services quality.

Barrier Entry: In the recent years, we can see that UPS has a great amount of competitor that they have to against such as DHL, … However, UPS also have ability to sustain its competitive advantage by preventing new entrants to the market by some operation strategy such as:

Branding Identity:

Capital requirements:

Buyer Power:

Threat of Substitutes:

The UPS services can be substituted by the other deliver company services, so that in other to prevent that happen. UPS should to keep their price as a level that its services have a safety zone with others services price.

In addition, a new technology or a new innovation also another ways that damage UPS services.

For example: with the revolution online buying (or online market), the markets seems to be changed, all the transaction doesn’t only shipping from one place to another place. They have to include the secure transaction, online payments. So that if UPS cannot quickly adapt with this market changing by operation method such as guarantee shipments, credit transfer products. Gradually or even shortly other company services will take over their market.

Degree of Rivalry

These number is a strong evidence to show that UPS has a successfully settled up effective operation system in such a way that the company is well clarified and offer the best solution for all type of end customers that it serves. It provides large set of offerings through its business units. It means UPS can offer all the solution related to transportation for its customer depend on the type, size and speciality of its customer. Furthermore, UPS always seek for new innovation which can apply to their services with intention to improve it quality as well.