UPS is betting on tech to deliver a competitive edge
It's a sweltering July in St. Louis, but at 6 a.m., there is only a hint of the day's coming heat. And still, Kerwin Williams is sweating. His shirt is soaked, because he's moving several hundred boxes in a matter of a few hours, across a narrow platform to three United Parcel Service trucks whose open cargo bays gape like hungry mouths. Williams feeds the vans with boxes and letters that he pulls from cages that are rolling past, every fifth one with boxes for him to grab.
It's hard work in the belly of a UPS package center, and not all physical. Loaders like Williams have to be thinking, and fast. They find the address on each UPS label and, if possible, from memory, mark the box with one of hundreds of sequence numbers that are based on physical addresses--the houses, loading docks, and office doors that are final destinations. Those sequence numbers then guide them to load the parcels onto one of three or four "package cars," in proper order, so the brown-uniformed UPS drivers can find them quickly as they dash on and off the van.
Williams's sorting is the last in a series that routed the parcels across the country or around the world. Until they arrived here, the packages were forwarded based primarily on ZIP codes. In Williams's head is where those ZIPs get broken down into the real world of streets and addresses, a job that until now was simply too overwhelming for a computer system.
Perhaps no industry has more effectively embraced the power of digital technology to modernize operations--even more so than airlines, which were long seen as leaders in cutting costs and boosting revenues through computers. "The delivery companies have leapfrogged ahead," says Satish Jindel of SJ Consulting Group.
In their tight competition, industry leaders UPS and FedEx have one-upped each other for years in rolling out hand-held computers, wireless links, and new uses of mainframe computing power. Now UPS is pushing automation to the last mile of its delivery network, down to charting the order in which packages are loaded on a truck and the most efficient route for delivering them. Dubbed "package flow technology," the latest upgrade is costing $600 million and taking three or four years to implement across the company's 70,000 routes. When the upgrade is in place, UPS says it should get back that $600 million every year in saved costs, as more-efficient routes cut 100 million miles of driving time and 14 million gallons of gas. "It's fundamental--a major, major change that will even change the way our drivers run their routes," says Chief Information Officer David Barnes.
Service. Besides lowering costs, the system already is speeding deliveries and making them more reliable, adding confidence that Mom will get the holiday package on time. UPS execs say the march of technology will give rise to new services, too, such as eventually enabling a recipient to change the level of service, meaning Mom can pay to get her package overnight after you cheapened out to send it by ground.
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.
"I'm not saying it's monkey work now, but it's taken a lot of the thinking out of it," Haberstroh says of driving with the new tech. UPS still wants him using his brain, but now he has more time for observing what's working with current customers and where the company might get new ones. Drivers are sources of sales leads, for which they get rewarded, and Haberstroh has had a good run lately. His rainmaking earned him a snowblower, which he stands beside in a photo proudly displayed back at the distribution center. As he drives by his own home, he starts looking for a neighbor whose name he doesn't recognize. It turns out the address on the package doesn't exist. No tech can catch all the mistakes made by workers or customers. "You're dealing with humans, and humans make errors," Haberstroh says.
So maybe it shouldn't be a surprise that the central hub for UPS air deliveries in Louisville, Ky., is highly automated. Renamed Worldport after a massive expansion completed in 2002, the huge complex is a showcase of UPS technology, where computers do almost all the sorting across a web of 122 miles of conveyor belts. Think Monsters Inc. with boxes instead of doors being whizzed across vast spaces--4 million square feet inside a building at Louisville's airport. Rows of small rubber mallets, called "hockey pucks," line one side of a belt, and, at a computer's beckoning, a few kick like the legs of Rockettes to push packages onto a belt going a different direction.
Near the top of the complex is the control room, where supervisors monitor the whole affair and dispatch technicians for malfunctioning belts. Richard Stasie watches the innards of the building, its matrix of conveyor belts illustrated as a dense crosshatch of lines glowing green on one of his screens. Lines periodically turn red to indicate a path that's jamming up. The average stoppage lasts two to five minutes, with 30 mechanics on call each night to make repairs. A belt that can't be fixed quickly gets rerouted to others on the matrix--all from Stasie's computer. "You can't do that if you've got humans doing the sorting," Stasie says.
Back at the St. Louis package center, Williams is still trying to get his brain fully programmed, more than a month after he started on the loading line. "I've got to check the sheets occasionally," he says, referring to laminated paper that hangs from his three package cars, each dense with ZIP codes, addresses, and the corresponding sequence numbers. It takes three or four months to get loaders up to speed with their routes, and they are jobs with high turnover--early morning, part-time, and hard physical work where pay starts at $9.50 an hour.
The new tech will "de-skill" those loading jobs, says Dante Bonney, a manager who oversees the loading line at the St. Louis center, which expects to get the package-flow tech late next year. Operators running a new set of computers where packages arrive at the center will plaster an added, "pre-load assist" label on each parcel. Those labels, instead of Williams's memory, will direct the parcels to the proper vehicle, and where on each vehicle, for loading. "It'll take days, instead of months, to get a loader trained," Williams says.
For now, a loader makes all the difference in a driver's day, says Robert Watkins, who delivers one of the routes out of the St. Louis center. For four years, he has worked the north side of the city--a hardscrabble area of small industry, stores, and residences. He knows the streets intimately, as well as the personalities along the way. He pauses to banter with a large woman who manhandles heavy boxes coming off the truck for the receiving department of one of his bigger clients. Letters, however, go around to another door, Watkins says, and the woman quickly explains why: "Because that girl won't come down here to pick them up."
Watkins winces, chuckles, and makes his exit. As he walks to his van, he wonders out loud about the automation coming his way, the unseen computer that will rework his route for efficiency and better service: "How can a computer ever know all my customers, all the ins and outs?" It's amazing, he says, to think they'll even try.
This story appears in the July 31, 2006 print edition of U.S. News & World Report.