The United Parcel Service (UPS) has withstood the test of time and is a shining example of longevity. UPS’ strategic decision-making process can be applied to any company regardless of industry. We’ll dive into the details soon enough, but first, let’s take a look at some stats.
Here’s a snapshot of what an enormous organization UPS are today:
- $84.6 billion revenue in 2020
- 540,000+ employees globally
- 220+ countries and territories served - including every address in North America and Europe
- 6.3 billion packages and documents delivered in 2020
- 24.7 million packages and documents delivered per day in 2020
- 1,800+ operating facilities worldwide
- 127,000+ motorized vehicles
- 281 own aircraft and 290 additional leased or chartered aircraft in its fleet
- 2,285 daily flights worldwide
While this strategy study won’t be able to cover everything UPS has done to this point, it will shine a light on how the company strategizes, thinks, and operates in order to stay on top of the game for over a hundred years.
We’ll take a look at UPS’ history, the overarching business model and values that form its foundations, the company’s evolution and digitization efforts as well as an emerging competitor.
Let’s start at the beginning of the story, and touch upon some of the most important events in UPS’ history.
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It all begins with a $100 loan
UPS’ story started in a Seattle cellar beneath a tavern in 1907. Two teenagers, Claude Ryan and Jim Casey, got a $100 loan and opened the American Messenger Company. Their first employees ran errands and made deliveries on foot or by bicycle.
A few years later they opened another office, purchased a delivery truck, and changed the company name to Merchants Parcel Delivery. In 1916 it was time to decide on company colors. Initially, the leadership wanted to go with yellow, but a new employee convinced them to paint the company’s vehicles dark brown, a color that tends to camouflage grime. And so UPS’ brand color was chosen because of practical reasons and efficiency, which, as you’ll see, is a very UPS thing to do.
In 1919 the company expanded outside Seattle, opening operations in Oakland, California, where it used the name of United Parcel Service for the very first time. In 1925 the entire company became known as UPS, and by the end of the decade, UPS was delivering parcels all over the West Coast.
Creating a well-oiled machine
In the 1920s UPS introduced automatic car washes for its vehicles, conveyor belts for sorting, and the famous brown uniforms.
Casey was obsessed with the appearance of his drivers and the customer service they provided. Soon UPS issued a UPS Policy Book to each employee, listing over one hundred highly detailed policies.
UPS was not your typical company. It became highly decentralized, with power delegated into regions, districts, and hubs and it showed that their main goals were efficiency and quality of service. Innovations, technology, and processes that would help them reach those goals would be tested and adopted throughout the company’s history.
Sharing the wealth with key employees
In 1927, consistent with his regard for his associates, Casey offered UPS’ stock at $15 a share to fifty-two key employees. All but three took advantage of the offer and they could sell the stock back to the company at a price set four times a year by the board of directors, prices which would consistently rise over the years.
In April 2018, just one of those initial $15 shares was valued at 16,000 shares worth $1.8 million. That’s how much the company grew and that’s how highly Casey valued his key employees.
Serving the general public
By the 1950s the need for store delivery was decreasing because customers were increasingly using their own cars to transport their purchases. That’s why in 1953 UPS began expanding common carrier service outside southern California.
By serving commercial and residential shippers, UPS put itself in competition with the parcel post service of the U.S. Post Office (now U.S. Postal Service).
At the same time, UPS reintroduced their air service, which failed in the late 1920s. They offered two-day deliveries to major East and West Coast cities and their packages were transported on commercial airline flights. Initially unprofitable, Blue Label Air became popular as its speed created enough demand to maintain a profit.
Reaching everyone in the continental US
In 1975, UPS became the first package delivery company to serve every address in the continental U.S. This incredible connection of service areas came to have an epic nickname within UPS - the Golden Link. The company finally managed to clear away regulatory barriers to operation in all 48 contiguous states.
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On this special occasion, the 88-year-old Casey said to his associates: “But you know, we are only serving 5% of the world’s population!” He wanted UPS to cover the earth and before his death in 1983 he would see his dreams starting to come true.
In fact, that same year of 1975 also marked UPS becoming an international company. They expanded to Toronto, Canada and offered their services abroad for the very first time.
Responding to a challenge
In 1971 a new company that changed the courier industry was founded - FedEx. It specialized in urgent, one-day deliveries and grew rapidly until it reached a billion in revenue in 1983.
UPS responded to the challenge by offering their own one-day delivery service and in 1985, UPS Next Day Air Service became the first air delivery network to reach every address in the 48-contiguous states, Hawaii, and Puerto Rico.
That same year, UPS also began its first intercontinental air service between the U.S. and Europe.
As the need for overnight air delivery grew, UPS established UPS Airlines in 1988. By the early 21st century it had a fleet of more than 200 jet aircraft.
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Going public and continuous evolution
In 1989 UPS expanded to the Middle East, Africa, and the Pacific Rim and entered new markets which offered opportunities for the growth of the company.
In 1999 UPS finally went public and sold shares to the general public. Today, over 70% of the stockholder votes are held by UPS employees and heirs of the founders.
In 2001 UPS acquired Mail Boxes Etc., Inc., the world's largest franchisor of retail shipping, postal, and business service centers. UPS’ newly acquired 3000 locations made their services even more convenient and widely available while lowering UPS-direct shipping rates.
On June 1, 2020, Carol B. Tomé began her tenure as the 12th CEO of UPS and became the first female CEO in the company’s history.
As you can see UPS’s rich history is full of opportunities they dared to grab and challenges they responded to. They stayed on the path of progress which enabled them to remain an industry leader throughout the 20th century.
The company's success is built on solid foundations - their vision and core values which largely impacted their business model. Let’s see what are some of the key elements of UPS’s success.
Key takeaway #1: plan how to stay ahead of the competition
Since the inception of the company, UPS has strived to offer efficient and quality service to their customers. That resulted in constant and purposeful improvement which allowed UPS to quickly adapt to many changes throughout the century. Planning for excellence is a crucial part of their longevity.
Business model and core values
“We are a comprehensive logistics services provider, with a global network of distribution centers. Through innovative technology and years of supply chain experience we help companies manage the flow of goods from receiving to storage to order processing to shipment. And you thought we just delivered packages.”
That’s how UPS describes one part of its services and it’s obvious they don’t define themselves just as a delivery service but as a logistics powerhouse.
If we look at their three latest slogans it’s clear that they are positioning themselves as a company that can handle any and all logistics needs.
The slogans were:
- What can brown do for you? (2002 to 2010)
- We love logistics. (2010 to 2015)
- United Problem Solvers. (2015 until now)
UPS segments its products and services based on the target market they’re meant for - from your neighbors, local small and medium businesses to huge international enterprises. Such varied target consumers require different business models, yet there is a common goal that UPS strives to achieve no matter the market.
They always strive to have the best service across the industry. That’s their main differentiator.
In one of their statements they said:
“Our prices have gone up in recent years in comparison to our closest rival FedEx, but our quality and service have not been diminished. With new technology, we have been able to deliver products faster and more efficiently to your front door.”
It’s clear what’s their #1 priority.
Let’s take a closer look at the foundations of UPS' business model and strategy - their mission statement and core values.
UPS’ mission statement
Here’s UPS’s mission statement:
“Grow our global business by serving the logistics needs of customers, offering excellence and value in all that we do.
Maintain a financially strong company with broad employee ownership that provides a long-term competitive return to our shareowners.
Inspire our people and business partners to do their best, offering opportunities for personal development and success.
Lead by example as a responsible, caring, and sustainable company making a difference in the communities we serve.”
The statement is quite elaborate and shows how thorough UPS is. Let’s break it down, focus on the main points and see how they transfer into practice.
Excellence and value for its customers
UPS is a customer-centric company. It guarantees timely delivery and is constantly improving its tracking so that customers can see what’s happening with their items. Users can use UPS My Choice and UPS Mobile to make delivery as convenient as possible which certainly adds value.
Improving communities
UPS states that it is a perfect example of what a responsible and caring company should look like. The company issues Sustainability progress reports, Social impact reports and runs a Humanitarian Relief and Resilience program. UPS has also pledged to complete 20 million hours of global volunteerism and community service by the end of 2020, although the report is not out yet. UPS is serious when they say that they “offer their business expertise and hands-on efforts to plan, plant, and improve communities and the planet.”
Inspiring others
UPS strives to exceed expectations - that’s a part of their dedication to excellent service as well as a reason why the company has been so highly rated for decades. UPS has always set high standards for themselves and aimed to adopt strategies that would benefit the company, the customers, the investors, and the general community. The company is also known for its internal development and promotion of its employees and as an employer that offers great career opportunities.
At the core of UPS’s mission statement are its values.
UPS’ core values
UPS’s core values might seem like a fairly generic list, but they are not just letters on paper - UPS puts them into practice in almost anything they do.
Their 7 core values are:
- Integrity
- Teamwork
- Service
- Quality
- Efficiency
- Safety
- Sustainability
- Innovation
A lot of these values are noticeable throughout UPS history.
UPS’ founder Jim Casey was obsessed with appearances and processes that would guarantee a quality and efficient service. Any innovation that would improve the processes was welcome and UPS still encourages the continuous search for better and easier tactics of getting the job done. They remain constructively dissatisfied in their pursuit of excellence.
The stability of the company has a lot to do with its emphasis on everyone going all out to serve, improve and deliver UPS’ services in a right and respectful manner. That’s the teamwork they emphasize. As Jim Casey said: "Remember that the story is to be about us - not about me. Determined people working together can do anything."
Determined people are needed to deliver quality service and when UPS lists service in its core values it is honing in specifically on serving the needs of their customers and communities. The outbreak of Covid-19 pandemic was a prime example of what that means, as UPS immediately issued a statement on their website:
“We’re here for you. UPS drivers will continue to pick up and deliver, even in restricted areas. While our customer care teams respond to a higher than normal call volume, here are some resources to help you get started…”
In the meantime, they were already looking into safety measures for their employees.
Let’s see UPS’s mission statement and core values in action and take a look at how a part of their business model proactively evolved when they deemed it necessary.
How UPS refocused on process quality and got everyone on the same page
In 1994, UPS’ CEO at the time, Oz Nelson, felt a change in the company’s performance measurement process was necessary. UPS wasn’t in trouble, but the leadership felt that the old ways of measuring performance won’t work under their new process improvement directions.
It’s important to note that UPS’ could have waited as they were doing just fine, but they proactively decided to realign a part of their business model with its core values.
Until then they had a “look at and measure everything” approach and 90% of the measurements were financial, which lagged the business activities by 45 days or more. Many of the frontline workers didn’t really understand the measurements and felt like they had no stake in the company’s strategy which went against UPS’s core values.
UPS decided to focus on key processes and put emphasis on process quality. They’ve implemented the Balanced Scorecard (BSC) which presented a results-driven measurement system that focused everyone in the company on customers and solutions.
The BSC helped UPS spread its strategic message throughout the company and to their frontline workers by focusing everyone on the same “Point of Arrival (POA)” measures, such as:
- Customer satisfaction
- Employee relations
- Competitive position
- Time in transit
UPS decided that these four measures represented the essence of their strategic levers for success and were also easily understandable. They set target values for each “Point of Arrival” that showed not where UPS would like to be, but where they had to be in order to achieve their goals and fulfil their mission.
How did the Balanced Scorecard work out in practice?
Bill Klussman, the industrial engineering manager at UPS said: “The BSC has been amazingly successful for us. Now that our drivers thoroughly understand the direction UPS is headed, they can relate better to our customers, which is helping generate more business for the company. The service provider in front of the customer is now a salesperson, helping market the company and develop sales leads.”
Doug Schultz, operational excellence manager, added: “When we rolled this out in 1996, people easily blew past the financial goals, but that was only 25% of how we measure performance. People weren’t as strong in some other areas. In order to drive UPS forward, we had to raise the bar. We did that by measuring people’s performance from a balanced approach. The BSC is a roadmap - the shared vision of our future goals - with action elements that let everyone contribute to our success.”
Here’s a summarized version of a Balanced Scorecard that UPS used in 1999:
In the five years after implementing the BSC, UPS has reemerged as a customer-focused, solutions-oriented business that uses leading technologies and e-commerce applications. The new strategy and measurement model resulted in UPS being named the Forbes magazine’s “Company of the Year” in 1999, while the company’s employees were described in the Business Week as the “the foot soldiers of the dot.com evolution”.
The Balanced Scorecard gave UPS a broader, more strategic, and predictive view of the company’s performance and was just one of many adjustments the company proactively made to retain its competitive edge.
Speaking of adjustments, let’s take a closer look at some more key examples of how UPS evolved and diversified its services and strategy over the years.
Key takeaway #2: proactively adapt while sticking to your core values
Most of UPS’ core values haven’t changed since its very beginning. In fact, they are the cornerstone of UPS’ identity and while strategies and business models have to change with time, they also need a solid vision of what they want to achieve and what the company stands for. A solid set of universal values makes it easier to identify what’s not working and what to change in order to refocus your strategy.
Diversifying and evolving
While UPS started out as a parcel delivery company it soon diversified its services and continues to do so. Nowadays UPS provides solutions in various segments such as consumer services, industrial manufacturing, professional services, healthcare, retail, and even aerospace.
The goal of providing complementary services is to become a “one-stop-shop” and make it convenient to use UPS for more than just delivery. That increases customer retention and revenue, but it also requires the company to stay in touch with the emerging needs.
Here’s an example of what UPS offers as special value-added distribution services:
Packaging solutions
Branded, environmentally conscious, temperature-sensitive and optimized corrugation packaging are available. Innovative damage protection through their Sealed Air Packaging Innovation Center. Store-ready product displays are also available.
Product customization
UPS offers a wide range of postponement services, including hardware and device configuration, software installation, light assembly of finished goods, literature add-ins, and the addition of documentation and labels.
Retail compliance
From labeling to quality checks, UPS helps customers avoid fees and chargebacks from retailers. They also provide services like garments on hangers, tagging, and an advanced shipping notice.
Kitting and pre-assembly
Includes component kit-building, configuring barcode labels for kits, kit disassembly, and distributed order management. UPS can also perform in-house inspections and refurbishment, edging, and decal services.
Quality inspections
UPS is ISO 9001 Certified. Lean Six Sigma methodologies and practices maintain a high level of quality. They can provide specialized and in-depth quality inspections, as needed.
Technical services
UPS provides specialized technical services - like screening/testing and software/hardware configurations - for high-tech and consumer electronics companies.
Foreign trade zones
UPS helps customers lower expenses and improve cash flow by reducing, deferring, and even eliminating duties, fees, and taxes associated with importing goods into the U.S.
3D printing
UPS lets customers produce single and small-batch parts-on-demand with centralized industrial-grade 3D printing and next-day delivery within the U.S.
That’s quite an impressive diversification within just one segment of UPS’ services and it shows that the company listens and responds to their customers’ needs which is crucial for retaining and increasing their market share.
Even a seemingly simple segment of domestic residential shipping evolved through the years to fulfill different customer needs. UPS offers:
- UPS Ground for day-definite delivery. Can take up to 5 days.
- UPS 3-Day Select for less-sensitive express shipments.
- UPS 2nd Day Air for packages that must arrive within two days.
- UPS Next Day Air for shipments that require overnight service. UPS splits Next Day Air into three tiers:
- Next Day Air Saver: guaranteed overnight shipping with afternoon delivery.
- Next Day Air: guaranteed overnight delivery between 10:30 AM and noon.
- Next Day Air Early: guaranteed overnight shipping by 8:30 AM for major US cities and 9:30 AM to most other destinations.
- UPS Express Critical: UPS' fastest service. Delivers to all 50 states, DC, and Puerto Rico by end of the day.
When speaking of residential shipping, we should also mention UPS’ Access Points. These are locations such as a grocery store or a petrol station that serves as a UPS parcel delivery and retrieval location. Although they seem self-evident today, Access Points are another result of UPS’ evolution and customer-centric strategy.
They answer the question: “How can we serve our customers more efficiently and ensure pickups and dropoffs are as convenient as possible?”
Instead of only offering their services at their shops, UPS collaborates with various stores and chains and currently has 9,000 Access Points in the United States and 29,000 globally. They plan to grow their number to 21,000 in the U.S. and 40,000 globally, thus ensuring there’s likely a UPS Access Point nearby no matter where you are.
No matter what new services or products UPS introduce, their strategy remains all about serving the customer's needs in an efficient manner. Let’s explore some of their approaches that helped them reach that particular goal.
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Efficiency at every turn
UPS takes what many would consider being extreme measures in order to improve efficiency and lower costs while retaining the quality of its service.
Arguably the most interesting example of these measures is this one:
UPS trucks do not take left-hand turns.
Why? Because turning right decreases safety hazards and delays. If a driver is stuck waiting for traffic to pass with a left blinker on, it's going to set them back. Jutting out into traffic is also a good way to get side-swiped, especially when driving a big truck.
The results show that the approach works. With the help of this rule (but not exclusively because of it) UPS' routing software shaved 20.4 million miles off their routes in 2010 while delivering 350,000 more packages than the year before.
Of course, it wouldn’t be possible to test and get the most out of such an approach without the proper technology.
As Juan Perez, UPS chief information and engineering officer, says: “We have tremendous success developing new technologies that provide a better customer experience and make our business more efficient. For example, traditional GPS inspired UPSNav, which more accurately directs our drivers to their destinations. Or ORION, the UPS-developed complex algorithm that optimizes 30,000 UPS delivery routes every minute. Technology is in our DNA, and we’re using it to transform the way we help our customers every day.”
Leveraging big data
It shouldn’t come as a surprise that UPS jumped on the opportunities big data provides. The company collects all types of information and uses it in many forms to solve practical business problems. With big data’s help, UPS improved its flexibility, capability, and efficiency. It also helped their line-of-business managers to improve performance by getting the right insight at the right time.
Perez said that the aim for UPS is to use the data it collects to optimize processes, to enable automation and autonomy, and to continue to learn how to improve its global delivery network.
A great example of leveraging big data is the company’s enhanced dynamic global execution (EDGE) program, a suite of projects based on detailed data UPS has been collecting since 2016. EDGE initiatives have changed the arrangement of parcels inside trucks, how temporary holiday workers are trained and even when trucks get washed.
Let’s take a look at another concrete example. UPS is continuously improving its fleet management system called Orion (On-road Integrated Optimization and Navigation). Orion uses telematics and advanced algorithms to create optimal routes for delivery drivers. In 2017 Orion started using big data to dynamically optimize delivery routes.
As Perez explained before the update was launched: "Today (in 2017), Orion creates delivery routes before drivers leave the facility and they stay with that static route throughout the day. In the future, our system will continually look at the work that's been completed, and that still needs to be completed, and will then dynamically optimize the route as drivers complete their deliveries. That approach will ensure we meet our service commitments and reduce overall delivery miles."
Such an update of Orion led to about 100 million fewer delivery miles made and therefore reduced the carbon emissions by 100,000 metric tons. Perez said that these reductions represent a key measure of business efficiency and effectiveness, particularly in terms of sustainability.
Projects such as Orion form a collective of initiatives that UPS is using to improve decision-making across its delivery network.
"That project will continue to evolve, as will all our innovations across the smart logistics network. Everything runs well today but we also recognize there are opportunities for continuous improvement,” says Perez.
With this example, we already dipped a finger into UPS’ digital transformation, but now it’s time to dive into it and see how a 100+ years company combines its core values with new technologies and possibilities.
Key takeaway #3: take care of emerging needs and take advantage of emerging technologies.
In theory, it’s quite simple - in order to successfully diversify, you should listen to your customers and address their most pressing or emerging needs. In order to evolve and become more efficient, you should leverage emerging technologies that can help you achieve your business goals. However, in order to do that, constant improvement should be your operational mantra. As you can see, it worked out well enough for UPS.
Digital transformation of a legacy giant
It’s not an exaggeration to say that every big enterprise is at least partially becoming a technology company.
UPS's story of digital transformation started as far back as the 1980s when the first handheld device was introduced to drivers and there is really no endpoint in sight for the company's digital journey.
Recognizing new business needs and the fact that digital transformation is a huge operation, UPS created an Advanced Technology Group (ATG) in 2017. ATG’s mission is to research, test, and develop new technologies and operating models that can improve UPS’ network. The team is housed within UPS’s engineering department but collaborates across the company.
Former UPS CEO, David Abney, said at the time of ATG’s creation: “We have to be more apt to take on risk and get involved in some of these new technologies at an early stage.”
Just a year later UPS introduced a plethora of innovations and new technologies. The company truly stepped up its tech game and brought forward the following:
- A significant update to UPSNav, which provides UPS drivers with a new level of accuracy and precision that’s not available with conventional GPS, enabling the company’s drivers to operate at top efficiency while improving their customers’ experience.
- Network Planning Tools (NPT) that combine advanced analytics, artificial intelligence, and operations research to more efficiently coordinate ground, air, and rail traffic between hubs to make the best use of sortation capacity. NPT empowers UPS to offer more reliable service to customers.
- Harmonized Enterprise Analytics Tool (HEAT) for hub operations that creates more accurate forecasts about the package volume that will need to be processed within UPS facilities.
- Mobile tools that enhance on-road productivity and new delivery helper apps that accelerate training of more than 50,000 seasonal delivery personnel.
- Dynamic Sort Instruction (DSI) transforms a highly complex package sorting process into a simple scan, listen and sort process. DSI increases employee productivity and shortens the training time for employees who work inside facilities.
But that’s not all. UPS’ digital customer engagement also saw significant improvements in 2018. Some of the key new introductions were:
- UPS internet shipping enhancements, like integration with 18 eMarketplaces to support eCommerce growth.
- UPS tracking/visibility enhancements, including significantly improved accuracy of estimated delivery dates and times.
- UPS Returns Manager, which makes it easier for consumers to return packages and easier for shippers to define and manage their return policies.
UPS’ digital transformation efforts cover everything from software that optimizes drivers’ routes to warehouse machines that can sort packages, to better hand-held devices that drivers use to scan packages when they drop them on doorsteps.
UPS is introducing new technologies into every corner of its business and is also testing various Internet of Things (IoT) solutions.
For example, the company uses more than 100,000 Smart Trailer devices that are attached to company assets, producing up to 60 million GPS messages every week. The ability to track company property so effectively results in cost and time savings, as it allows for last-minute route and load changes which were not possible with their legacy system.
Furthermore, UPS is also overhauling the services they offer to others, such as industrial manufacturing solutions. The company published a whitepaper explaining why it’s focusing on “Smart Operations” in order to reach new levels of operations excellence.
It states that the current methods can result in overly optimized processes which become inflexible, leaving the business unable to rapidly adjust to disruptions in the supply chain and changing customer demand. However, “Smart Operations” which are fueled by digital transformation, allow companies to better analyze and quickly manage changes to their supply chain both upstream and downstream of the factory.
While we won’t delve deeper into smart operations, it’s interesting to notice how UPS considered the possibility of over-optimization and compared it to the flexibility new technology offers. This speaks volumes about the adaptability of UPS’ views and their desire to make the most of what’s available at this point in time.
No wonder that Perez believes the company is positioned well for the future. He says: "I don't think our digital transformation is ever really going to end. The solutions that we're building today are supporting the business today, but they're also being built to support the needs of the future."
Speaking of new technologies, we simply have to touch on what has been a very hot topic in the delivery industry for quite some time now - drones.
Key takeaway #4: digital transformation is not a side-project
Digitization of products and services has become a must in many industries, yet it’s still often treated as a side-project. UPS is an example of how to do it properly. They’ve created a new department focused on implementing new tech and have been investing over $1 billion per year to enhance their processes with new solutions. That’s what it takes to remain an industry leader.
The future is… in the air?
In 2019, the FAA gave UPS the first full approval for a drone airline, which means UPS has the right to operate as many drones as they want.
While drones still seem quite far from widespread use, they are proving to be useful in certain situations and on certain locations such as medical campuses.
UPS' first approved flight was launched at the WakeMed hospital campus in Raleigh, North Carolina. Delivering lab samples and other medical supplies by drone across major US hospital campuses seems to be the priority for UPS’ drone operations at the moment as further penetration of the healthcare and life sciences logistics market is one of the four main strategic imperatives.
UPS has also tested drones for urgent commercial deliveries over bodies of water and developed a drone that can make residential deliveries by launching from a UPS truck.
Right now, the company’s plan is to:
- Expand drone delivery service to new hospitals and campus environments around the country.
- Add new services including residential and commercial drone deliveries.
- Partner with drone manufacturers to build drone hardware and software.
- Hire for all positions including management, drone pilots and repair technicians, engineering, IT, and more.
- Keep safety at the heart of everything they do, with air and ground-based, detect-and-avoid technology.
What needs to happen before we see more widespread use of drones?
"Three things needed to come together for drones: The customer needs, the readiness of the technology, and regulatory approvals," says Bala Ganesh, VP of the Advanced Technology Group at UPS.
While drones have a certain futuristic draw and are perfect for making the headlines and creating some free publicity, there are also more practical alternative air delivery options UPS is exploring.
Electric vertical takeoff and landing aircraft
UPS, together with its Flight Forward subsidiary, plans to purchase electric Vertical Takeoff and Landing (eVTOL) aircraft from Beta Technologies (BETA) to enhance and possibly overhaul its air service for specific small and mid-size markets.
These aircraft are made so that they can land and take off at UPS facilities in a whisper-quiet fashion, reducing time-in-transit, vehicle emissions, and operating costs. They are certainly inspired by drones but made to be more efficient and financially viable.
The cargo capacity of 1,400-pounds is ideal for time-sensitive deliveries that would otherwise fly on small fixed-wing aircraft. It allows UPS to enhance services and value for small- and medium-sized businesses as well as healthcare providers - both segments that are a part of the company’s four strategic imperatives.
“This is all about innovation with a focus on returns for our business, our customers, and the environment. These new aircraft will create operational efficiencies in our business, open possibilities for new services, and serve as a foundation for future solutions to reduce the emissions profile of our air and ground operation,” says Perez.
The first ten BETA aircraft are scheduled for 2024, with UPS having an option to purchase up to 150 more of them if the introduction of such services goes well.
There are many reasons why UPS has to keep innovating and evolving and among them, there’s one specific competitor that is going to make things very interesting for UPS in the near future. Let’s take a closer look.
Key takeaway #5: explore your options
While drones are a hot topic, they won’t hit the mass delivery market anytime soon - or ever. Still, UPS saw their use in one specific segment (for now) and also expanded the concept of drones into a related area of delivery that might be more financially feasible. Often exploring each and every option connected to a promising idea might lead to a better and more focused solution.
A customer or a competitor?
When speaking of main competitors, UPS is traditionally compared to FedEx. The companies certainly have a history and have pushed each other to introduce new services and answer each other’s challenges.
However, FedEx is not the competitor we’re going to talk about. It’s Amazon.
Amazon is fascinating because it is UPS’ biggest customer, but it’s also apparent that it’s becoming one of UPS' biggest competitors.
Amazon was probably always considering creating its own delivery service, but the tipping point must’ve been the Christmas season of 2013. That’s when UPS and FedEx struggled to meet holiday shipping deadlines which tarnished Amazon’s image as many of their packages didn’t arrive on time to be put under the Christmas tree.
In an email to their customers, Amazon explained that they processed all orders on time and that UPS and FedEx were responsible for the delay.
Since then Amazon went on a logistics expansion tear.
- By 2016, they had leased 40 jets to move its freight around the country.
- They’ve created their own same-day services, offering Prime Now deliveries in many urban areas and grocery delivery from its Whole Foods Market.
- Amazon now oversees more than 100,000 drivers in blue Amazon-branded vans. They have also placed an order with Rivian, a Detroit start-up that’s building electric vehicles, to build 100,000 delivery vans starting in 2021.
- Amazon’s capital expenditures, which include such things as logistics expansion and the costs of data centers, increased a whopping 80% over the last 12 months and will continue to grow.
- The company increased the capacity of its in-house logistics operations, known as AMZL, by 50% each year over the last few years.
- Amazon’s logistics business handled 5.1 billion packages in the United States in 2020, just shy of the 5.3 billion packages UPS shipped domestically.
- In 2015, UPS, postal services, and FedEx delivered more than 97% of Amazon’s packages in the United States. In 2020 Amazon handled 67% of its package deliveries and until the end of 2021 or mid-2022, this number will probably go to 85%+.
These numbers should ring all the alarm bells in UPS’ building, right? Well, it’s a bit more complicated.
UPS and FedEx took a very different approach to Amazon’s threat.
FedEx decided not to help one of their upcoming main competitors while they’re still building their delivery and logistics network. In August 2019 they announced that they are not renewing their ground-delivery contract with Amazon, officially citing the reason to be the company’s efforts to “focus on the broader e-commerce market”.
However, Amazon accounted for 13.3% of UPS’ revenue in 2020 by paying $11.3 billion for their shipping services. That’s just too much money to walk away from.
At the beginning of 2020, the former CEO of UPS, David Abney said: “We watch what they do. They’re certainly a customer, but they can be a competitor in certain areas, and we monitor that. We’ve got a mutually beneficial relationship.” Thus suggesting the current relationship between the companies wouldn’t be disrupted as long as it stays mutually beneficial.
The looming threat of Amazon is very likely also one of the reasons why UPS is heavily investing in innovations and new technologies.
The thing is that Amazon started building its logistics from scratch just a decade ago and that means that it was able to put technology at the center of its operations, which makes it even more important for UPS to modernize its systems. And they just might be paying for their innovations with Amazon’s money.
UPS has never shied away from a challenge and their ability to evolve in order to stay efficient makes them confident they can compete with Amazon. That’s why they still have a contract with them.
There’s another reason why UPS is feeling confident at the moment.
Amazon isn’t yet shipping packages for customers beyond their own third-party sellers. The primary impediment to doing that is Amazon’s own retail growth. Its own products continue to soak up the shipping capacity it creates and doesn’t leave enough capacity to service other customers.
However, if that changes, we’ll start seeing the real battle for market share and that is likely going to be one of the biggest challenges UPS has ever faced.
Key takeaway #6: prepare for the emerging competition
Only time will tell if UPS’ approach to dealing with Amazon was the correct one. However, we can see that UPS is rapidly evolving its services and preparing to take on new competitors by retaining their market share with added value and expanding to new markets.
UPS’ SWOT analysis
Let’s recap everything we’ve covered during this strategy study in a concise SWOT analysis.
Strengths
Strong global presence
UPS is delivering shipments in more than 140 countries and regions. It is also working as a small delivery service in approximately 220 countries. Their strong global network allows them to offer time-definite shipments worldwide.
SMART network
UPS’ cutting-edge delivery system is based on seamless integration of collection and distribution mechanisms. The company invested $20 billion to construct the SMART network, which is an acronym for Southeast Metro Automated Routing Terminal.
Excellent customer service
Being customer-centric is one of UPS’ core values. To attract, satisfy, and retain customers, businesses have to deliver consistently high-quality service. UPS’ customer satisfaction rate is also generally higher than FedEx’s.
Innovative culture
UPS never shied away from innovations. They experiment with new tech in order to improve their delivery service, diversify, and to better serve their customers’ needs. Their innovations in logistics and delivery systems earned them the Forbes CIO Innovation Award.
Fast and timely deliveries
Consistently fast and timely deliveries are a must if a company wants to stay on top of the industry. UPS has been doing it for over 100 years and they are still striving to improve their processes and become even faster and more efficient.
Competitive prices
As a huge player in the industry, who has been streamlining its operations for decades, UPS is able to offer competitive prices for high-quality services. A high price/value ratio is crucial for attracting and retaining customers.
Online tracking
UPS is able to track 295 million shipments per day. Their transparent and advanced online tracking system makes it very simple to check when their customers can expect their delivery.
Weaknesses
Reliance on the US market
In 2019, US domestic package delivery and freight generated $58.6 billion while international delivery brought in $15.41 billion, which means that only a fifth of their income comes from outside the US. If Amazon becomes a strong local competitor or if the US market slows down due to recession, it can hugely affect UPS’ revenue.
Shipping during the holiday season
During peak shipping season around Christmas, the average daily package volume doubles and that’s a problem. As UPS can’t afford too many delays, they have to spend a lot of money to keep up with the demand which impacts their profitability during the holiday season.
Employee safety
Although in theory UPS’ emphasizes their employees’ safety, they’ve been pretty lackluster in this area. They increased the weight limit of packages from 70 to 140 pounds in the 1990s which resulted in many injuries and there were still articles in 2019 that worker injuries are underreported.
Opportunities
E-Commerce operations
The whole e-Commerce sector relies on deliveries and is growing rapidly. This is definitely an opportunity for a company that figures out how to be the most e-Commerce friendly.
Expansion through acquisitions
UPS can look to enter untapped markets through the acquisition of local logistics companies in order to increase their global revenue share.
Further diversification of services
UPS can use its logistics systems and global network to expand into related markets or experiment by offering new services when the opportunity arises. They are already evolving into a one-stop shop for certain sectors and they should continue to do so.
Experiment with new delivery methods
We’ve mentioned drones and smaller electrical aircraft and that’s exactly what can open new niches for UPS. If they are the first one to offer efficient and fast air delivery over short distances they’ll be able to establish a strong market share in many niche markets.
Threats
Intense competition
With several big industry players and Amazon emerging as a huge threat, UPS’ market share is never safe and the company can’t afford to make big mistakes.
Dependence on Amazon
As we’ve mentioned, delivering for Amazon represented 13.3% of UPS’ revenue in 2020. As Amazon expands its delivery services, UPS will almost certainly lose a significant chunk of its income.
Transportation costs
It’s quite simple - the delivery sector is impacted by transportation costs and if these costs continue to increase, it will lower UPS’ profitability.
The pandemic and looming recession
Not only has the Covid-19 pandemic negatively impacted UPS profits, but has also impacted other companies. If the recession becomes more severe, UPS could face even bigger losses.
Final thoughts and key takeaways
This strategy study is just a snapshot of UPS’ long and very successful history. It demonstrates how a company can evolve and change many of its processes without changing its identity or core values.
UPS is a stellar example of the importance of continuous innovation for long-term success and constant growth.
One might think that after 100+ years of existence an industry leader’s growth would stagnate, but that’s not the case when it comes to UPS. Just take a look...
Recap: growth by the numbers
The ultimate list of strategic takeaways:
- Set universal core values that will define your brand and stick to them.
UPS’ goal was always to offer their customers the best quality of service in the most efficient way. Their core values reflect that and acted like guidelines throughout their history.
A seemingly simple question such as: “What can we do to offer our customers the best quality of service in the most efficient way?” has different answers in different segments and at different times.
However, what it always does is make you think about what you should do to stay on top of the industry.
That’s why you should carefully choose a set of universal values and a mission statement that will define your brand and help to refocus your efforts when the times get tough.
- Continuous innovation is the key to longevity.
As new technologies emerge it’s inevitable that someone somewhere will find a better way to solve the same problem you’re solving. Some companies stick to what has worked for them in the past until it’s too late. Others, like UPS, search for such innovations or at least try out promising new technologies as soon as they appear on their radar.
In the fast-paced world we live in there’s no time to rest on laurels. If you’re not innovating and improving, you’re already falling behind.
- Involve everyone in the company.
Early on, UPS involved every employee in its vision by issuing the UPS policy book. At the end of the 20th century, they made sure that their employees understood the company’s goals by introducing the Balanced Scorecard. Why? Because it’s impossible to achieve excellent service (their goal) without involving their employees.
Every company should make sure that their employees understand their business goals and that they see what their contribution is. If they see and feel that their work actually matters, they’ll be much more engaged than otherwise. Especially if they feel good about their company.
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