http://www.nwfdailynews.com/articleArchive/jul2006/upslowtechitpower.php
How UPS went from low-tech to an IT power By COREY DADE The Wall Street Journal 2006-07-24 (AP) - LOUISVILLE, KY., Awaiting a flight among visibly weary travelers at this city's airport, David Barnes pranced on the balls of his feet as if he were about to bound through the gate and pilot the plane himself. It was an unusual display of gusto from an executive at one of the nation's big button-down companies, but talk of "package visibility" struck just the right chord in Mr. Barnes as he gazed across the runway at his company's brown-tailed aircraft. "I'm excited," he said, pumping his fists. "This is fun." Mr. Barnes, the 52-year-old senior vice president and chief information officer at United Parcel Service Inc., oversees a division of 4,700 employees that develops much of the company's software, services an Internet site that draws 18.5 million visitors a day, maintains 8,700 servers and monitors 15 massive mainframes capable of processing millions of instructions per second. And he gets to spend more than $1 billion a year to do it. Promoted 19 months ago from vice president of information-technology development for customer and operations applications, Mr. Barnes is guiding a massive implementation of computer-driven automation, Web-site enhancements and other innovations designed to wring more efficiency from a famously proficient network, which moves an average of 15 million packages a day across the world. A little more than two decades ago, Atlanta-based UPS was a low-tech, labor-intensive trucking concern unconvinced that it needed to invest heavily in new data technology. Today, it is a vast multinational operation employing cutting-edge technology, much of it developed in-house, to manage and deliver other companies' inventories. With that transformation, UPS faces many of the information-technology challenges confronting other companies, such as improving ease of use online for customers, integrating systems across separate business units, and pushing wireless and other technology out to employees so they function as effectively in the field as they do at the office. Mr. Barnes and his department are tackling those challenges aggressively. No formal ranking exists for IT spending by corporations, but analysts at Forrester Research Inc. in Cambridge, Mass., say the nation's largest banks spend the most, at $5 billion to $7 billion a year. Among businesses in other industries, UPS has few peers in IT spending, says Laurie Orlov, a Forrester vice president and IT analyst. "Most companies, by comparison to UPS, are late to the party," she says. Not UPS's chief rival, though. A primary motivation for UPS is staying ahead of its top competitor, FedEx Corp., in overall shipping volume. FedEx, of Memphis, Tenn., delivers an average of more than six million packages a day. The companies' rivalry has intensified in recent years as their businesses have evolved. FedEx became legendary as the cargo airline that made overnight and other high-speed deliveries a routine part of the U.S. economy. UPS was the ubiquitous but much slower-moving truck delivery company. The deliveries of both companies still skew toward those origins, but each has now aggressively pushed into the other's core business. Like Mr. Barnes, FedEx CIO Robert B. Carter has an annual IT budget of about $1 billion, and he has a larger staff, of about 6,000. FedEx recently completed a three-year IT overhaul that, among other things, knitted together the Web-based shipping systems of the company's ground, air and freight businesses in a new application called Fusion. Customers, who had complained that using any of the three delivery modes required learning separate applications, now follow the same instructions for using each service. Fusion also provides a single source for FedEx employees to access customer and revenue information. For both companies, IT has become a crucial aspect of their battle for customers. "The reason why they are able to charge a premium, relative to the post office, is because they provide that extra step, that technology, that companies can't produce themselves," Merrill Lynch & Co. analyst Ken Hoexter says. "You are paying not just for the package (delivery) but for the ability to track the package. You can reroute a package, you can reorder; you can control your supply chain with that flow of information." In his 29 years at UPS, Mr. Barnes has had a hand in most of the company's significant advances in technology. He started with the company in 1977 as a college student, loading packages onto trucks part time in St. Louis. He remembers the sea change at UPS after the emergence of FedEx, which by 1983 reported $1 billion in annual revenue after just 10 years of operation, and which embraced new technologies as a strategic tool earlier than UPS did. Before FedEx became a serious challenger, the focus of UPS's efforts to improve efficiency and customer service was fabled time-management studies that measured how long it took to perform every task in the entire delivery network, and then guided the company in obsessively shaving minutes or even seconds from each action. One legendary outcome was training drivers to fasten their seat belts with the left hand while turning the ignition key with the right hand. "We needed to push," Mr. Barnes says. "Once UPS made up its mind that it was going to invest in technology, the growth has been dramatic." UPS says it began pouring as much as $1 billion a year into technology by the late 1980s. It was given fresh incentive for investment in 1997, when FedEx announced plans to acquire Caliber System Inc. in a deal that included small-package ground shipper RPS Inc. RPS, which was later rebranded FedEx Ground, gave FedEx the ability to track ground packages, something UPS couldn't do at the time. UPS realized it needed to drive even more deeply and quickly into technology. The centerpiece of the company's technology spending today is an initiative started in 2004 that includes software, hardware and operational changes designed to streamline the UPS network from the moment a delivery order is placed to the time it reaches its destination. It all starts with the address label attached to a package. Customers can download and print their own labels, with detailed information on the sender, the destination and when the package should arrive, either by using software provided by UPS or by going to UPS.com. Before the package is even picked up by a UPS driver, information from the "smart" label is transmitted to one of UPS's massive data centers in Atlanta or in Mahwah, N.J., and then sent to the distribution center nearest the final destination. Dispatchers there download the addresses and other data and use specialized software to build a delivery route for each driver that factors in weather conditions, traffic and the location of each stop. To save time, the routes are specific to the finest details, such as avoiding left turns that might hold up trucks. By the time a package reaches the distribution center at the midpoint of its journey, a separate label has been generated with instructions for exactly where the box must be loaded in the delivery truck. The driver works through boxes from the front of the truck to the rear, where packages with later delivery times are stowed. For instance, a Next-Day Air Early A.M. shipment scheduled for delivery by 8:30 a.m. is placed nearest the driver, so it can be dropped off at one of the first stops. Without the "preload assistance label," the job of packing trucks is labor-intensive and time-consuming. Newly hired loaders who aren't yet using the system spend as many as 90 days in training, and only the most experienced handlers manage to fill two trucks in a full shift. Boxes loaded out of order occasionally delay some drivers as long as 30 minutes as they rearrange the packages. UPS says the initial implementation in 2004 hit snags at roughly a third of the distribution centers, primarily because dispatchers had trouble navigating the software and assembling improved delivery routes. "It wasn't the technology; it was a problem with training," Mr. Barnes says. "We stepped back and looked at it and realized we had to work with the dispatch planners and the drivers." The new system has reached about two-thirds of the 66,000 UPS drivers in the U.S. Mr. Barnes says the company has seen dramatic benefits. In February, the new system trimmed a total of nearly 1.9 million miles from UPS delivery routes, a 3 percent reduction from February 2005. Shorter distances mean savings on fuel and vehicle maintenance, which is critical as gas prices continue to rise. UPS saw its fuel spending soar 48 percent in the first quarter of this year, to $578 million from $390 million in the year-earlier quarter. The company shields itself with fuel surcharges. At the package center on the campus of UPS's global air hub in Louisville, dispatchers say the new system has given them greater control over the volume of 60,000 to 70,000 packages handled per day, and increased visibility to track items through the network. Receiving package information ahead of the actual package allows them to tweak delivery routes with less disruption for the drivers. "The whole process is easier," says dispatcher Roger Hicks. "And it's easier to tell the customer exactly where their package is." David Cremisi, the package division manager in Louisville, says his drivers, who average a combined 100 pickups and deliveries per day, have gained enough time to make an additional seven to nine stops per shift. UPS hasn't released its projection for package-volume growth after the system is completely implemented by the end of 2007, but the company says it expects to save $600 million a year in operating costs. The improved package flow, combined with the satellite global-positioning system of the latest generation of hand-held computers for the company's drivers, will allow UPS to pinpoint within minutes when a driver will arrive at a destination. That means deliveries eventually could be scheduled by appointment, saving customers from having to wait for indefinite periods. "That's a possibility, but in the distant future," UPS spokeswoman Donna Barrett says. UPS technology isn't complete without the drivers' brown hand-held computers, which the company pioneered 15 years ago. In the latest model, which UPS is nearly halfway through distributing to its drivers, software developed in-house sounds an alarm in the device if a driver forgets a package in the truck or is about to deliver to the wrong address. "In 1991, they told us it couldn't be done," Mr. Barnes says. "But we continue to innovate." Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list [email protected] To unsubscribe send an email to: [EMAIL PROTECTED]
