Business Problem-solving Case
New Technology at UPS Clashes with Outdated Ways of Working
This chapter’s Interactive Session on Technology described how UPS investments in information technology are helping it remain competitive in the package delivery market. Unfortunately, UPS has not been as competitive as it could be because critical aspects of its operations have been saddled with outdated technology and manual procedures.
Although much of UPS’s IT infrastructure is leading-edge, not all of it is. UPS moves millions of packages each day using 80,000 drivers. Until recently, about half were processed through automated facilities, the rest being handled using 30-year-old equipment and manual processes.
For example, in UPS’s Mesquite, Texas, package-sorting facility, a 30-year-old analog control panel the size of a chest freezer with rows of red and green lights informs workers when something on the facility’s web of conveyor belts goes awry. The sorting process begins with boxes being unloaded from trucks onto conveyor belts. A worker is required to align each box so that a scanner can read the delivery label on the front, top, or one side. The packages move inside to a line of about 50 workers. There are nine conveyor belts, three along the ground, three waist-high, and three directly overhead. A human sorter picks a package, quickly deciphers the label, and then places the package onto the correct belt. A worker around the corner sorts packages down chutes, where loaders fill truck trailers. In an automated facility scanners would read a package’s destination and use equipment called shoe pucks to push packages down the proper chute.
At an older less-automated facility such as Mesquite, a medium-sized package receives four “touches,” with each “touch” representing an act of handling. Each “touch” increases the chance of a sorting error or damage to the package. Mesquite processes about 40,000 pieces per hour, so even rare human mistakes add up. Missorted packages can add an extra day to a UPS delivery, degrading customer service and adding to operating costs.
All FedEx ground hubs, such as the facility in Edison, New Jersey, are automated. There, FedEx workers “touch” most packages only twice, for unloading and loading only. Amazon operations likewise are heavily automated, especially its warehouses, which feature driverless forklifts and robots that bring shelves to workers.
About 30 miles from Mesquite, UPS’s Fort Worth facility illustrates UPS’s efforts to catch up. There boxes are scanned, sorted by destination, and sent to outbound vehicles via machines. With six-sided scanners, employees do not need to worry about which side is up. UPS employees in an air-conditioned control room view a wall of flat-screen monitors displaying live video feeds. The computer detects jams and other malfunctions, and workers can reroute where the conveyors send packages. There is no human element in rerouting a package in the Fort Worth building. A few workers walk alongside the belts to replace any package that falls off, which rarely happens any more. Directing the sorting network is software that helps manage package flows, including those between automated facilities and older ones. The technology can divert additional packages destined for areas overwhelmed by volume. This automated 750-worker facility can process the same number of packages daily as can Mesquite with 1,170 workers. Automation has increased the accuracy of the sorting, and also generates data to help the company optimize delivery routes using fewer miles, less fuel, and less equipment and also provide better forecasts of shipping volume.
In contrast, 96 percent of competitor FedEx’s ground packages move through automated sites. FedEx discarded outdated equipment and manual processes years ago, and new rival Amazon.com never had to deal with outdated systems at all.
UPS initially applied a “band-aid” approach to dealing with surging e-commerce shipments. It would add extra shifts, extend working hours, or retrofit parts of older buildings with new equipment. But UPS management knows it has to rectify this situation to remain competitive in the twenty-first century, and be able to handle the new distribution requirements posed by e-commerce.
The company plans to invest $20 billion between 2019 and 2022 to adequately meet twenty-first-century shopping and shipping trends. Much of this investment will be directed toward new automated shipping and warehousing facilities, including seven “super hubs,” which can sort packages 30 percent more efficiently than standard facilities.
In the past, most of the shipments handled by UPS went to retailers and business corporations. Today, more and more of these shipments are destined for individual households who have purchased an item or two online using the Internet. UPS now delivers more than 50 percent of the packages it handles to homes. Numerous deliveries to far-flung suburban homes are more costly to UPS than delivering and picking up multiple packages at large businesses or offices.
Although some of UPS’s management worried about so much company business going toward lower-margin deliveries, the company knew it had to embrace e-commerce. According to UPS spokesperson Steve Gant, there is “tremendous opportunity” in delivering e-commerce orders even amidst formidable competitors who at the moment appear to be more technologically and organizationally advanced. UPS plans to process all packages, with the exception of some large ones that travel short distances, through automated hubs by 2022.
Trying to use outdated shipping technology and procedures in the new e-commerce environment had caused UPS to lose business. Bottlenecks from being overwhelmed at times by online orders created delays that drove some health care, industrial, and other corporate customers to switch to FedEx. Amazon is creating its own delivery network of trucks, vans, and planes to handle most of its online orders, especially in cities and suburbs. Since Amazon accounts for as much as 10 percent of UPS’s revenue and an even higher share of shipping volume, UPS will definitely be affected.
UPS is unionized, FedEx ground-operation workers are not. Has that made a difference? The International Brotherhood of Teamsters represents 260,000 UPS drivers, sorters, and other workers, and it wants UPS to hire more full-time workers to help handle the surging UPS package shipments. The union has opposed technology such as drones and self-driving vehicles and is concerned about changes that can perform the same work with fewer employees. As Sean O’Brien, a Boston Teamsters leader pointed out, technology streamlines and eliminates jobs. Once jobs are replaced, “it’s pretty tough to get them back.”
FedEx has no unionized workers in its ground network, so it doesn’t have to deal quite as much with opposition from organized labor. Additionally, FedEx’s ground delivery network is newer than that of UPS, employing more modern technology and operating procedures. It doesn’t have to grapple with retrofitting automation into facilities with older ways of working.
According to UPS, unionization has not heavily impeded company efforts to spend more on automation. The cost of new machines to automate an older facility have become low enough for UPS to both retrofit older facilities and build new ones.
In some instances, new automated package sorting facilities have helped UPS create new jobs. For example, a new automated UPS package delivery center in northwest Houston has created 575 full- and part-time jobs. The 238,000-square-foot center added 300 trucks to the company’s delivery fleet in the Houston area.
FedEx, which has spent $10 billion on its network of 37 ground hubs since 2005, is now trying to slim down. Some places, such as the $259 million FedEx Indianapolis ground hub, are being closed. FedEx has ground hubs such as the one in Edison, New Jersey, that are designed for flexibility. This facility uses only one-third of a building’s space and has room to expand with additional equipment on short notice. This arrangement enables FedEx to adjust its network to accommodate more volatile flows of online orders.
UPS is also implementing other technologies to complement automated package sorting. In 2017 it started placing wireless Bluetooth receivers inside delivery trucks to reduce the likelihood of misloaded packages. Wireless signals are passed between Bluetooth beacons and the scanning devices worn on workers’ hands and hips to read UPS package labels. The beacons beep loudly if a worker places a package into a delivery truck that is not headed to the package’s destination. A different beep confirms when packages enter the correct truck. Before deploying this technology, UPS did not perform a final scan to confirm that all parcels were on the right truck. Drivers had to drive out of their way to deliver these packages or find a supervisor to transfer them to the correct truck.
Besides reducing delays, the Bluetooth-driven system can furnish customers with more details about upcoming deliveries. When packages are scanned in the morning, the data update UPS’s service for sending customers emails showing the status of their shipments. Customers signed up for this service receive a message about the package’s arrival date and estimated delivery time.
Another Bluetooth enhancement informs seasonal workers about where to direct outbound packages that UPS vehicles pick up during the day and bring to the company’s sorting facilities. UPS hires nearly 100,000 seasonal workers from November through January. In the past, these workers would have to memorize hundreds of zip codes to know where to place parcels. UPS started outfitting some of these seasonal workers with scanning devices and inexpensive Bluetooth headphones that issue one-word commands for “Red,” “Green,” or “Blue,” designating specific conveyor belts for transporting packages to locations for further processing.
New technology makes it possible for UPS processing facility managers to know exactly how many undeliverable packages they must process each night and when they will arrive, which helps them plan work shifts for rerouting the packages. The information is displayed in real time on managers’ Samsung smartphones in the form of graphs showing the number of incoming packages, how quickly they are being processed, and which worker groups are busiest, so staff can be allocated where demand is highest. In the past, UPS managers had to rely on historical data and radio conversations with drivers to estimate how many undeliverable packages they would have to handle each night.
All of these technology investments are starting to pay off. UPS was able to handle the upsurge in deliveries during the 2018 holiday season much more easily than in the past. By the end of 2019, about 80 percent of UPS-eligible ground shipment volume will be processed in automated facilities, resulting in annual savings and cost avoidance of as much as $1 billion.
Sources: Bloomberg, “UPS Sees Payoff from $20BN Tech Bet,” SupplyChainBrain, April 24, 2019; Paul Ziobro, “UPS’s $20 Billion Problem: Operations Stuck in the Twentieth Century,” Wall Street Journal, June 15, 2018; Katherine Feser, “UPS Package Delivery Facility in NW Houston Creates 575 Jobs,” Chron, January 17, 2019; Elizabeth Woyke, “How UPS Delivers Faster Using $8 Headphones and Code That Decides When Dirty Trucks Get Cleaned,” MIT Technology Review, February 16, 2018; and Shefali Kepadia, “Company of the Year: UPS,” Supply Chain Dive, December 3, 2018.
Case Study Questions
1-13 Identify the problem faced by UPS. Was it a people problem, an organizational problem, or a management problem? Explain your answer.
1-14 Describe the solution to this problem pursued by UPS? Is this a successful solution? Why or why not?
1-15 Diagram the packing sorting process at UPS before and after automation.
1-16 How did automated package sorting change operations and decision making at UPS?
The paper should be between 5-8 pages and should include:
- Title Page
- Reference Page
- Table of Content
Your paper should include APA format (Times New Roman, font size 12, double-spaced, proper grammar, and reference list)
Your paper should utilize at least one outside scholarly or professional source related to the expansion into international markets.
Your paper should include an Abstract, Introduction, Conclusion and References
Use of proper APA formatting and citations. If supporting evidence from outside resources is used those must be properly cited.