UPS is betting on tech to deliver a competitive edge
For more than a decade, UPS has typically spent $1 billion annually on technology--that's against revenues in the last year of nearly $43 billion. The company's expensive tech price tag isn't without detractors, including investors who fret that UPS, a tightly managed company where engineers have long held sway, overly obsesses about shaving seconds off delivery times. The package-flow upgrade also netted disappointing results at about a third of its initial sites, Barnes concedes, and has rolled out more slowly than the company originally predicted. But recent results have been more consistent, and market concerns seem to be easing, helping UPS's stock to bounce back from a dip last year. The company remains cagey about the savings realized, but it has a long history of successful tech spending, says Daniel Ortwerth, an analyst with Edward Jones. "I can't imagine them overspending on this." Jindel sees other benefits, noting that UPS recently said it would deliver early-morning packages to 50 percent more ZIP codes. "They couldn't have done that without the new efficiencies," he says.
Still, the upgrade can be disruptive as processes are remade at package centers, of which the company has 1,100 across the United States. UPS drivers are also on the fourth generation of their hand-held computers since 1991--which reflects the "constructive dissatisfaction" voiced by UPS founder James Casey, who started the company in 1907 as a Seattle messenger service and built it into the world's largest delivery company. "It's a cultural issue," says Barnes, "of convincing our employees that there is always a better way of doing things."
Pushing automation to the fringes of its operations is only possible because of the mass of data that UPS computers have been collecting as parcels move through its central hubs, and thanks to advances in math and computing power. Delivery companies have become leaders in "operations research," a growing field that uses mathematical models to streamline processes, says Michael Trick of Carnegie Mellon University. "It used to be that only airlines could worry about issues like routing," he says.
Not that UPS was always at the forefront of technology. Competitors beat it to innovations like digital signatures that can show a shipper almost immediately who received a package. Bart Haberstroh, who delivers for UPS in St. Charles, Mo., a St. Louis suburb, remembers when "the joke was that the sharpest tech UPS had was a sharp pencil," he says as he wheels his brown van through familiar streets. Haberstroh has driven for more than 20 years at UPS, and he delivers in the same neighborhood in which he lives, bolstering the personal connection with customers that UPS says it values in its drivers.
Routed. Those ties get more attention now that Haberstroh has been armed with the latest software, the package-flow tech. He fumbles less for boxes in his van and no longer has to plan his route based on what he finds in the back of his van; that's done for him by a dispatcher back at his distribution center in Earth City, an industrial park in another St. Louis suburb.