Foundation Forum

Mr. Rajan Penkar
Director, Customer Resource Group
United Parcel Service
Global Presence--The World Distribution Perspective
Mid-America AFA Symposium
St. Louis
May 3, 1996

This is a very appropriate forum for us as UPS is a global company. We have invested in infrastructure, both physical infrastructure and well as the technology infrastructure, that allows our customers to project their global presence using our assets.

UPS is a privately-held company with revenues of $21 billion in 1995. We serve 200 countries today with our 330,000 employees and 174,000 vehicles and ship over 3 billion packages a year.

The mission of UPS is "serve the ongoing package distribution needs of our customers worldwide and provide other services that enhance customer relationship and compliment our position as the foremost provider of package distribution services, offering high quality and excellent value in every service." I'd like to point to two elements, our worldwide presence and offering high quality and excellent value in every service.

There was a time when we talked about being the most price-effective carrier, but we realized that price is not everything. We have to make the infrastructure investments, especially in technology, which we cannot do if we are the lowest priced carrier. Our business is a technology business and not just a physical movement of packages anymore. It is also the movement of information.

We have 11 domestic regions and our international regions for our ground operations and air operations. We have not as yet gotten into the sealift area, but we probably will and have worked with certain companies, including CSX, to afford us that capability.

Our corporate offices are in Atlanta, Georgia. Our Chicago area consolidated hub is our most sophisticated technology hub processing over 200,000 packages an hour when it gets up to full speed.

Presence starts through our ground network in the domestic United States with over 2,500 facilities. In addition to those ground facilities, five air gateways are critical to our operations: Louisville, Dallas-Fort Worth, Rockford, Illinois, Columbus, South Carolina and Ontario in California. We also have major international gateways. It is amazing how closely our gateways match up with your military presence across the board.

We have over 200 jet aircraft and charter another 300 aircraft to conduct over 1,500 flight segments a day. UPS serves over 600 airports around the globe.

[companies slide] In addition to the operations, UPS has a number of subsidiaries: UPS Sonic Air which provides same-day and next flight out deliveries for critical components, a brokerage operation, our worldwide logistics operation that provides third-party logistics services and an FCC licensed telecommunications company. We have leasing operations that support trucks as well as aircraft. We also have technology companies that we have acquired over time, II Morrow, which is a company that produces Loran and GPS-based receivers as well as mapping software and routing technologies.

Of the last couple of years we realized we were a very strong operationally oriented company focused on becoming better over time. We were successful but realized this team-based approach was internally focused and should really be focused on our customers. As a result, we took some of those resources and formed what we called customer-resource groups, cross-functional teams working with specific strategic customers to provide customized solutions. Consisting of core functions finance and accounting, logistics, marketing, industrial engineering, and technology, there are 11 regional, domestic teams and four international teams.

Just to give you an idea of one of their projects, we were instrumental in the deployment of the "Beatles Anthology." You carry a lot more sensitive and important equipment, but this project was also crucial for this particular account of ours because security was a major concern. Our job was to move 2.5 million CDs to 18,000 retail locations simultaneously on Saturday to support a promotion by ABC-TV on Monday. If one package was lost and released ahead of time, the customer would have lost a tremendous amount of money. One of our regional teams put together a ground and air network using our assets to deliver these packages in a cost-efficient manner. We were able to bar code all of these packages, track them throughout our system and provide proof of delivery, including signature capture, automatically to our customer at a reasonable cost and still make money.

With that, let me give you an idea of the information technology we use to tie together our far-flung operations, but also the information technology strategy that we have put in place so that our customers can get the information they need in addition to the movement of packages.

In thinking about the strategy for information technology, we had to look not only at our customer requirements but where we thought the future of the logistics business was going, especially in the area of globalization. The change in the logistics environment in recent years has been to "Just-in-time," "Quick Response." Clearly things are moving faster, cheaper and with less inventory sitting in warehouses. Companies are moving from physical warehouses, where inventory sits, to "virtual warehouses," where a carrier, such as UPS s trucks, planes and package cars, keeps inventory moving so it is available when and where necessary. It was clear we had to provide the information to our customers that would give them the same amount of control over their inventory as if they had the inventory in their own warehouse. Our Package Level Detail (PLD) initiative acquires information about the package and makes it available to whoever needs it earlier enough in the shipping cycle so that it is useful to everybody, not just to our customers but also to our operations.

We believe we can provide full visibility tracking, in transit tracking, prealert exception notification, and a host of flexible billing services so that whoever needs to pay for that particular service has the ability of paying it, whether customer, shipper or third party.

The mainstay of this technology is package identification. Every single package that needs to be tracked will be tracked through the use of bar code technology. Today out of 12 million packages, about 8 million packages have bar codes on them, and within a year or so, we will have every single package in our system bar coded. In addition, we have developed a technology called dense-code technology MAXICODE, a two-dimensional bar code, which can contain about 100 characters of information in one square inch. Half of the information we will use internally and the other half is available for our customers to use.

For this technology to be really useful, it had to be available to all carriers as well as all customers. So, we released the technology into the public domain to allow wide use in the transportation industry, not just within UPS.

Our package tracking system lets us know exactly where a package is within our system. But in addition to that, we also have a scan and link system that links each package to a container, be it a brown package car, a truck, an igloo or an aircraft.

Our delivery information network consists of the driver with a hand-held computer that is capable of acquiring signatures electronically. When the driver gets back to his vehicle after making a delivery, this particular computer is placed in a docking station that is actually a cellular telephone which passes the information on package delivery, to our mainframe computers.

The whole purpose of this technology infrastructure is to close the information loop between when a customer gives an order to a shipper to final delivery.

Our strategy is to acquire information as quickly as possible and electronically if possible. What we have is the UPS on-line suite of products that range from mainframe systems to software systems that fit on personal computers to what we call the TELESHIP, which is an advanced telephone capable of communicating with our network to track as well as ship packages. To allow visibility as well as attainability of that information, we have the Total Track System which allows package tracking through the Internet or commercial online systems.

We do that through a global telecommunications network called UPS-Net, a fiber optic network which eventually will provide video as well as voice transmission across the country and globe.

In summary, we think that technology is important not just to for our customers, but also for internal operations. We have achieved today somewhere on the order of accuracies of 1 in 2,500 as far as package sorting accuracy. We need to get to an accuracy of "six Sigma", which will be somewhere in the range of 3 errors per million packages. We cannot do that just using human intelligence to remember package tracking codes and to remember packaging sorting cords. We strongly believe that information technology is what is going to allow us to get there.

Information technology is going to save costs and let us be more efficient in a number of areas: reduced key entry, efficient planning, execution as well as auditing of our systems and then the de-skilling of our internal operations. Most of these strategies have been well tested and are already in place. We hope that both this information technology architecture as well as the physical infrastructure that we have built will make us the leader in the logistics industry in time to come. Thank you for your attention.

GEN. SHAUD: Raj, thank you very much. Once, General Cassidy told me he was sending some staff down to UPS because it is really a commercial USTRANSCOM. I can see how there are a lot of folks in the audience who probably can learn an awful lot from UPS. When I looked at your ports and gateways, it reminded me of how important aerial port squadrons were to our sorting out requirements for the 4102 OPLAN. We can learn a lot from the quality approaches that UPS has taken. Are there any questions from our audience?

QUESTIONER: On your decision making system, you discussed how you are going to take decisions out of the operations loop. Are you going to use artificial intelligence to aid the decision makers or are you going to change the system entirely to eliminate the decision point?

MR. PENKAR: It is more the latter. It is not so much an effort to incorporate artificial intelligence but to be able to index into databases which will automatically perform the sort and load operations without the operators we use today. They typically sort to 20 different destinations and as it gets lower and lower into the sort cycle, they have to remember specific street addresses that go into a particular package car. As you can see, you can only go so far with that kind of an architecture using human intelligence and training people. We have to get beyond that to new levels of accuracy that is only feasible with the use of information systems.

GEN. SHAUD: Thanks again Raj for joining us today.

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