Ups Case Study

UV0906 united PARCEL SERVICE OF AMERICA, INC. United Parcel Ser valetudinarianism of America, Inc. (UPS) had grown spectacularly from its humble beginning in 1907, when 19-year-old Jim Casey borrowed $100 to start a courier and home language military supporter for Seattle department terminals. By 2007, UPS had go a world(prenominal) unexclusive comp either, with a market cap of $74 zillion, much than than 428,000 employees, $47 one thousand one million million million in revenue, and operations in more than 200 countries. A accept leader among piece of land actors line companies, its growth had been above industry mediums and had historic solelyy been through geographic expansion.In 1998, UPS changed its production line shape to synchronised identifying and adopted a sore growth strategy it called the quadruplet Quadrant model. UPS had hoped to expand its market station from $90 billion to $3. 2 trillion by transforming itself into a logistics-solutions smar t set. more everyplace eight old age after these changes, UPS was generating only(prenominal) 17% of its revenue from its nonpackage deliveries, with only $2 million of its in operation(p) pro adjoin coming from the innovative businesses. In the beau mondes 2006 Annual Report, UPS Chairman and chief operating officer microphone Eskew admit the spoil results and realized that these results required a response to the public market.Growth archives Store locations One can look at the growth of UPS over the past 100 years as an iterative geographical expansion. UPS began as an intracity business in Seattle in 1907, and had grow to Oakland, California, by 1919. Over the bordering 58 years, UPS established stores across the United States, opening its first 1 in New York City in 1930. In this manner, UPS extended its military service through its new locations just like either expanding retailer and, in the process, became an intercity package deliverer.This case was prep bed by Edward D. Hess, prof and Batten Executive-in-Residence. It was compose as a basis for class discussion rather than to deck effective or ineffective handling of an administrative situation. It was adapted from Professor Hesss chapter on UPS in The Search for Organic Growth, ed. Hess and Kazanjian (New York Cambridge University Press, 2006). Copyright 2007 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights re god.To order copies, send an e-mail to email& one hundred sixtyprotected com. No part of this publication may be reproduced, stored in a retrieval agreement, used in a spreadsheet, or transmitted in any form or by any meanselectronic, mechanical, photocopying, recording, or a nonher(prenominal)wisewithout the permission of the Darden School Foundation. Purchased by carlos manuel Garcia man (email&160protected com) on November 12, 2012 -2- UV0906 The troupes geographical expansion went international in 1975, when UPS opened a store i n Ontario, Canada.European expansion began in 1976, with a new store in Dusseldorf, Germany. UPS then expanded continually throughout the world the Asia-Pacific locality in 1988, and Latin America in 1989. By 1995, the company had entered China, its decease untapped market. node evolution From its beginning, in 1907, UPS operated for 46 years as an intracity delivery business, transporting packages from life-size department stores to customers homes. Then the company expanded, providing residential deliveries for early(a) fonts of businesses and later for business deliveries.Changes in the American lifestyle and shopping patterns that emerged with the origin of suburbs, regional malls, and an interstate high representation system forced the company to go in a new direction. UPS responded to the changes in demographics, exaltation, and customer needs by transforming itself, first, into a national delivery company and, ultimately, in the 1990s, into a globular delivery compan y. The company broadened its customer base get on by delivering more than 50% of the packages that customers bought over the Internet.By 2007, the companys customer base include all types and sizes of businesses, from Dell Com go downer to the individual entrepreneur denounceing products on the Internet. UPSs 2006 worldwide revenues of $47 billion were derived primarily from package and text file deliveries. From 2002 to 2007, the company expanded the scope of its run under its Synchronized Commerce model to provide pack promotion, customs clearance, inventory oversight, pick and pack, merchandise financing, and customer returns and repairs. Company Growth The growth of UPS can be illustrated trounce by its revenue growth, from $29. billion in 2000 to more than $47 billion in 2006. The companys operating model produced operating margins that were the surpass in the industry. As shown in tables 1, 2, and 3, UPS averaged 12% yearbook growth over the past decade and generate d an average return on equity in excess of 20%. Purchased by carlos manuel Garcia intrepid (email&160protected com) on November 12, 2012 -3Table 1. UPS operating results. (in billions of dollars) 2006 Revenue Operating margins Net income CFFO $47. 6 14. 0% $ 4. 2 $ 5. 6 2005 $42. 6 14. 4% $ 3. $ 5. 8 2004 $36. 6 13. 6% $ 3. 3 $ 5. 3 2003 $33. 5 13. 3% $ 2. 9 $ 4. 6 UV0906 2002 $31. 3 13. 5% $ 3. 2 $ 5. 7 Table 2. Revenue in 2006 by segment. U. S. domestic packages multinational packages Supply stove and freight 64% 19% 17% Table 3. Operating profit (loss). 2006 U. S. domestic packages International packages Supply chain and freight UPS Operations Headquartered in Atlanta, Georgia, UPS had more than 428,000 employees worldwide, of whom more than 248,000 make believeed under union agreements. UPS was a vertically integrated company.For example, it operated the worlds eighthlargest airline, which employed more than 2,800 pilots and maintained a fleet of 600 jets. Flying more than 1,900 flight segments to more than 800 aerodromes near the world, UPS airplanes moved more than four million packages and documents routine. The company delivered more than 15. 6 million packages a day and was the Internets largest fulfillment source. And it delivered those 15. 6 million packages on time 99% of the timeand defect-free. UPS also operated champion of the largest truck fleets in the United States, with more than 94,000 vehicles. $4. B $1. 7B $2M 2005 $4. 5B $1. 5B $156M 2004 $3. 7B $1. 1B $138M 2003 $3. 7B $. 7B $56M 2002 $3. 9B $. 3B ($167M) Purchased by carlos manuel Garcia Gay (email&160protected com) on November 12, 2012 -4- UV0906 In its role as a large technology and telecommunications company, UPS operated the largest DB2 data base in the world, with 412 terabytes of dynamic memory. Its mainframe potentiality allowed for the transmission of more than 22,000,000 instructions per second. UPS had more than 4,700 employees in its technology unit. In addition, th e company operated the worlds largest ph superstar system.Its mobile radio lucre transmitted more than three million packets of tracking data separately day one example of the vastness of the scale of its communications was that UPS certain more than 145 million constitutes per business day on its vane site, with 252 million hits on peak days. The enormous size of the company was further illustrated by its Worldport technology and package hub, based in Louisville, Kentucky. This automated airport and package-sorting center comprised four million square feet, the equivalent of 80 football game fields, and processed several(prenominal) 1,200,000 packages a night during a four-hour period.UPS was expanding its Worldport facility by adding another 1. 1 million square feet to increase its hourly electrical condenser by 20%. Employees The companys 85,000 device drivers held esteemed positions in the company. The average tenure of a driver was 16 years, and driver turnover was lit tle than 2% a year. Union drivers could earn up to $70,000 a year. elder drivers received nine weeks paid annual leave, and 100% of their health-insurance premiums were paid by the company. With more than one-third of its employees from minority sort outs, UPS had a diverse workforce. More than 25% of the companys U. S. anagers were also members of minority groups. Women represented 27% of its U. S. counsel police squad and 21% of its overall workforce. More than 70% of its full-time managers had been promoted from within. The companys promote-from-within policy and employee-centric civilization were further illustrated by the fact that more than 50% of its full-time drivers had started as part-timers. At less than 6%, annual employee turnover at UPS was low. Long tenures and low turnover permeated the company, from its front-line employees to its district managers to its 12person executive director group up. The average tenure for district managers was 14 years.The of age(p ) management team averaged 30 years of service. Eleven of the twelve executives, including one woman and one African American, had spent their entire working lives at UPS. Interestingly, 75% of its vice presidents had started at UPS in nonmanagement positions, and nine of the twelve members of the major(postnominal) management team had only an undergraduate college degree. And no one in management had an MBA from a covering fire-ranked business school. Most had gone to such public colleges as Purdue, Delta State, Portland State, Rutgers, and the University of Illinois. Purchased by carlos manuel Garcia Gay (email&160protected om) on November 12, 2012 -5- UV0906 Kurt Kuehn, a member of the senior management team and senior vice president of Sales and Marketing, stated, Most senior managers like me began at UPS as part-timers in college or as package sorters or assistants. We loved it, and we stayed. UPS became a public company in 1999, in the largest IPO in the history of the New York Stock Exchange. By 2007, some half of UPS stock was owned by its current and former employees and their families. Customer Reach Yes, UPS was big and UPS was spheric. It make more than 15 million deliveries day-by-day to nearly eight million customers.Its customer-contact points included 4,400 UPS stores in the United States, 1,400 global Mail Boxes Etc. stores, 1,000 UPS customer centers, 15,000 UPS authorized outlets, and 40,000 UPS drop boxes. Measurements UPS was focused on efficiency and productivity measurings and, in 2007, spent more than $10 billion integrating its processes and technology to throw away the company a real-time 24/7, 365-day operation. Behind every driver were the sophisticated technology and operations-support team that introduce the exact location of any package or document anyplace, anytime. On a daily basis, UPS organized every part of its logistics chain for utmost efficiency, down to the order in which packages were loaded on vans. Using tec hnology, UPS pee-peed routes daily that eliminated left-hand turns, saving driving time, millions of gallons of fuel, and fuel costs annually. In kinsfolk 2003, UPS unveiled a new technology system designed to meliorate customer service and provide crackinger internal efficiency. This new system was expected to reduce mileage by more than 100 million miles and save the company almost 14 million gallons of fuel annually.In addition, the new system featured advanced tools allowing UPS to analyze and edit dispatch plans in order to optimize delivery routes and times. We mystify a saying at UPS, said Kurt Kuehn. In God we trust everything else we sum of money. Another important instalment in the UPS recipe for supremacy was its engineering process and cadence mentality. UPS mensural everything CO2 emissions, the time it took to wash a windshield, the pace a driver needed to walk to a customers house, the most economic way to start a package vans ignition, the optimum way to load a package van, and the optimal daily delivery routes.Purchased by carlos manuel Garcia Gay (email&160protected com) on November 12, 2012 -6- UV0906 In 1921, undercoater Jim Casey hire the first industrial engineer to do efficiency time and doing studies. Casey started UPS on a path of process engineering that, over the years, positive into a powerful operations-research division. The division spent its first 87 years internally focused on measuring everything that could be calculated, such as studying, modeling, and simulating the movements of people, conveyor belts, and packages.For example, UPS developed 340 methods for drivers to follow to increase their efficiency and ensure preventative. This mensuration mentality taught everyone to pay attention to the detail and the little things that could threaten safety and impede on-time delivery. Another example of the passion for measurement was the way UPS measured its managers. The company used a balanced scorecard and pu blished 16 UPS key performance indicators for the economics, social, and environmental areas. UPS measured water consumption, ground-network fuel efficiency, and global aircraft emissions.The purpose of this measure-everything mentality was expressed by Jim Holsen, vice president of Engineering, who said, Were never satisfied with the way things are, if they can be improved. This measurement compulsivity did not mean that UPS was a micromanaged, rigid, robotic workplace where every action was fit(p) by best practices. UPS overcame that tendency through its performance husbandry of nonrecreational its people well, holding everyonefrom the package sorter to the CEOto the same high standards, and universe a predominantly employeeowned company.In 1942, strong controls were offset by local impropriety from the districtmanager level when drivers were given the power and authority to do what was needed to serve customers. As Jim Casey said, Each local manager is in charge of his dis trict. We indirect request him to look upon it exactly as if it were his own business. We privation him to solve his fusss in his own way. Culture The Essence of UPS To understand how UPS had continued to grow its business over a 100-year period while avoiding the common death volute of bodily arrogance, hubris, and insularity, it was important to understand the UPS purification and the UPS operations-research mentality.Both were so integrated and intertwined that they were a seamless whole. And both were continually perpetuated at UPS through stories, processes, measurement systems, human-resource policies, and leadership. Jim Casey built UPS over a 50-year period with a distinct and well-defined cultivation that embraced the values of integrity, quality, dignity, respect, stewardship, partnership, equality, and humility. To understand UPS meant understanding Casey, a man who went to work at the age of 9 because his father was ill, and who founded UPS at 19.Casey was a sel f- do success who rose above his humble background but never forgot his roots, treating every individual and employee with the dignity and respect he felt each deserved. Purchased by carlos manuel Garcia Gay (email&160protected com) on November 12, 2012 -7- UV0906 Casey often wrote and spoke well-nigh the type of company UPS should be and the values it needed to foster. He left his depression on UPS through the values that were taught to every new employee.UPS executives believed it was their duty to make sure those values, those ways of doing business, and those ways of victorious care of employees continued. They did not want the UPS glossiness to change or give out on their watch. The richness of the UPS culture was show by the Employee Policy Manual, which every employee received, and the compendium of Caseys speeches in the companys book Legacy of Leadership. These speeches proved that Casey wanted to hold a business where employees took pride in working for a company tha t conducted business as an outstanding corporate citizen.The UPS culture was multifaceted A performance culture with partneurial mutuality of accountability, regardless of position A constant quantity challenge-and-be-critical and be-better culture described as constructive dissatisfaction An employee-centric ownership culture with executives as stewards of the business Mutual accountability Kurt Kuehn described the UPS culture A culture of mutual accountability. Everyone is accountable to everyone else for performancedoing whats right and doing it well. And he added, With our measurement system, we try to take personalities and politics out of judging performance. At UPS, the CEO was as accountable to his employees as they were to him. And in response to this, CEO Mike Eskew had a special telephone installed in his office so that any UPS employee could call him directly at any time. This mutual accountability was partneurial because employees were viewed as partners. In fact, m ost were actual owners of the business. This mutual accountability bred a more egalitarian culture that discouraged and de treasured arrogance, hubris, or self-aggrandizement. For example, all of the meridian 12 executives at UPS had offices on the fourth floor instead of the top floor of the headquarters building.All the executives had offices of the same size, and almost all shared senior administrative assistants. These executives were not provided with limos or drivers. UPS did not own a corporate jet. Executives flew commercial and followed the same travel policies as other employees. There was no executive dining room. It was rare to see Italian suits, French cuffs, or made-to-order shirts on the fourth floor. For the most part, 11 of the 12 executives had held some(prenominal) different positions as they worked their way up the corporate ladder.The UPS culture frowned on self-marketing, and the company worked hard every day to continue the values and ideals put in place by Jim Casey. Purchased by carlos manuel Garcia Gay (email&160protected com) on November 12, 2012 -8- UV0906 When asked to describe the UPS mutual-performance culture, Kuehns choice of the word relentless said it all about the passion at UPS. Relentless improvement UPS was relentless about improving and worked at a problem until it was solved. By emphasizing the detailsthe blocking and tackling of the businessthe company focused on the processes of efficiency and productivity.This iterative learning culture was illustrated by Casey, who, when he started the business, wrote to more than 100 delivery companies across the United States to ask them how they made a profit. He reported, We found no singular idea that was really revolutionary. It seemed to be a government issue of learning as we went along, and that is about all that we have done. 1 The UPS culture was about the relentless pursuit of constant, incremental improvement. It was about how the company could be faster, smarter, an d more efficient. This led to the rewarding and honoring of constructive dissatisfaction.Dissent, inquiry, questioning, challenging, and critiquing were all valued and encouraged because they helped UPS improve. The company took the long-term approach. For instance, it took the international-operations division 28 years to become profitable. UPS was like the little engine that could, working at a problem or a process incrementally and iteratively until it was improved. Stewardship The third strong aspect of the UPS culture was the partneurial, employee-centric ownership and leader-stewardship that helped everyone in the company achieve their potential. According to Casey, One measure of your success allow for be he degree to which you build up others who work with you. While building up others, you will build up yourself. 2 Casey continued Good management is not just organization. It is an military position inspired by the will to do right. Good management is taking a sincere int erest in the welfare of the people you work with. It is the ability to make people feel that you and they are the companynot merely employees. 3 On the subject of future leaders, Casey said Who will those leaders be? They will be people who now, today, are beat aheadnot speculating or with fanfare but modestly and quietly.They are the plain, simple people who are doing their best in their present jobs with us, any(prenominal) those jobs may happen to be. Such people will not fail us when called 1 2 UPS archives, 1947. UPS archives, 1945. 3 UPS archives, 1944. Purchased by carlos manuel Garcia Gay (email&160protected com) on November 12, 2012 -9- UV0906 on for bigger things. It is for them, our successors, to remember that all the glamour, romance, and success we have in our business at any stage of its existence mustiness be the product of years of benefiting from the work of many devoted people.And there can be no glamour, no romance, and no truly great success unless it is shar ed by all. 4 The employee-centric culture of UPS was further evidenced by the following Promotion-from-within policies and actions Employee stock-ownership plans Diversity programs Employee education programs Local employees working in international operations Employee internal free-agent program allowing any UPS employee to move anywhere in the company and advanceCasey believed in and acted on the policy that it was the employees and not the executives who made a company successful, and UPS believed it had an obligation to share its success fairly with those who made it happen. The three aspects of the UPS culturemutual accountability, constructive dissatisfaction, and employee-centric policies and ownershipwere the foundation of the UPS way of doing business. Integrated into these cultural values and policies were operations research and a measurement mentality.But an important part of UPS was its corporate heart. Two examples of corporate citizenship at UPS stood out. In 1 968, at the height of the civil-rights movement in the United States, the company began a diversity-awareness program that was unique in corporate America. Calling it the Community Internship Program, UPS laid more than 1,200 senior managers in inner city or Appalachian environments. These employees spent several weeks working in soup kitchens, homeless shelters, and other community-service facilities.UPS also issued an Annual Corporate Sustainability Report. More than 80 pages long, this report little how UPS balanced its economic success with social and environmental objectives and how it measured its performance. To that end, for quintuplet years running, UPS and its employees made up the largest segment of contributors to the U. S. United Way Campaign, modify more than $57 million in 2005 alone. 4 UPS archives, 1957. Purchased by carlos manuel Garcia Gay (email&160protected com) on November 12, 2012 -10Cultural Fit in Hiring UV0906UPS hired people who fit into its culture an d its iterative improvement and measurement workplace. The people who UPS avoided hiring were those who wanted a fast track to the top. Instead, UPS looked for candidates who wanted to be part of a team that was the best at what it did and who loved the blocking and tackling of team business. The payoff for a job well done was the opportunity for a career of overlord and experience development. New chore Model and Strategy When UPS ran out of geographical areas in which to grow, at least three things could have happened.First, it could have hit the growth wall and plateaued. Second, it could have tried to sell new, complementary services to its existing customer base. And third, it could have made a major variegation move through an acquisition. In 1998, the company picked the second option when it denote it would provide Synchronized Commerce solutions for its customer base. Synchronized Commerce expanded UPSs market space, and CEO Mike Eskew declared, Our new mission is ambitio us. It propels us from a $90-billion market into a $3. -trillion market. In effect, Synchronized Commerce allowed UPS to sell more products and services to its existing customers. To effectuate this model, UPS acquired nearly 30 service providers with expertise in such different areas of Synchronized Commerce as freight forwarding, customer clearing, export financing, fulfillment services, and customer returns and repairs. Eskew defined Synchronized Commerce as the coordinated and efficient movement of goods, information, and financing along the supply and distribution chain.This change was huge, as it not only challenged the UPS sales force, but also changed the focus of the companys operations-research division. Rather than guidance exclusively on improving efficiency and productivity, the focus shifted to a consulting group that sold those skills to UPS customers. Four Quadrant Model UPS did not stop at its Synchronized Commerce initiative. Eskew also codified and explained UP Ss organic-growth strategy to UPS employees and to seawall Street. He named this new strategy the Four Quadrant Model, based on the University of North Carolina basketball teams use of the four-quadrant offense.He stated, We will call our offense for innovation The Four Quadrants, which focuses on innovating existing business operations internally and externally and likewise focuses innovation on new entrepreneurial ventures both internally and externally. Purchased by carlos manuel Garcia Gay (email&160protected com) on November 12, 2012 -11- UV0906 The Four Quadrant Model reemphasized the long-standing principle at UPS of maintaining the core while desire to grow new revenue sources. UPS was adamant that it could not fail in servicing its core business and that it had to keep adding services to its existing service model.Kurt Kuehn explained The more value we can add for our customers on top of or within our existing business model, the more value we will create for our custome rs and for UPS. He added, Our organic-growth strategy is simple it is the business model. The entrepreneurial activities at UPS were internally and externally driven by its venturecapital fund and alliances with universities and partners. UPS understood that it would have a high failure rate, but worked to manage the risks so that much could be learned quickly and at a low cost.Results of New Business Model In the fourth quarter of 2006, UPS initiated a restructuring plan for its forwarding and logistics operations, including a reduction in nonoperating staff of approximately 1,400 people. And how had the new model done? It had produced only $2 million in operating profit. Eskew knew that these disappointing results required a response to the public market, so he hold the situation The Supply Chain and Freight segment produced disappointing results 2006 brought a sharper focus in our logistics business.Simply, all supply chain solutions must meet two criteria. One, they must be limited to the transportation network, and two, they must be repeatable, and that is, able to be used by a number of customers simultaneously. 5 Still, the new business model had raised some interesting questions. 5 2006 UPS Annual Report. Purchased by carlos manuel Garcia Gay (email&160protected com) on November 12, 2012