CASE STUDY 1

United Parcel Service (UPS) started out in 1907 in a closet-sized basement office. Jim Casey
and Claude Ryan—two teenagers from Seattle with two bicycles and one phone—promised
the “best service and lowest rates.” UPS has used this formula successfully for more than a
century to become the world’s largest ground and air package-delivery company. It’s a global
enterprise with over 400,000 employees, 93,000 vehicles, and the world’s ninth largest airline.

UPS delivers 15.6 million packages and documents each day in the United States and more
than 220 other countries and territories. The firm has been able to maintain leadership in small-
package delivery services despite stiff competition from FedEx and Airborne Express by
investing heavily in advanced information technology. UPS spends more than $1 billion each
year to maintain a high level of customer service while keeping costs low and streamlining its
overall operations.

It all starts with the scannable bar-coded label attached to a package, which contains detailed
information about the sender, the destination, and when the package should arrive. Customers
can download and print their own labels using special software provided by UPS or by
accessing the UPS Web site. Before the package is even picked up, information from the
“smart” label is transmitted to one of UPS’s computer centers in Mahwah, New Jersey, or
Alpharetta, Georgia, and sent to the distribution center nearest its final destination.

Dispatchers at this center download the label data and use special software to create the most
efficient delivery route for each driver that considers traffic, weather conditions, and the
location of each stop. UPS estimates its delivery trucks save 28 million miles and burn 3 million
fewer gallons of fuel each year as a result of using this technology. To further increase cost
savings and safety, drivers are trained to use “340 Methods” developed by industrial engineers
to optimize the performance of every task from lifting and loading boxes to selecting a package
from a shelf in the truck.

The first thing a UPS driver picks up each day is a handheld computer called a Delivery
Information Acquisition Device (DIAD), which can access a wireless cell phone network. As
soon as the driver logs on, his or her day’s route is downloaded onto the handheld. The DIAD
also automatically captures customers’ signatures along with pickup and delivery information.
Package tracking information is then transmitted to UPS’s computer network for storage and
processing. From there, the information can be accessed worldwide to provide proof of delivery
to customers or to respond to customer queries. It usually takes less than 60 seconds from the
time a driver presses “complete” on the DIAD for the new information to be available on the
Web.

Through its automated package tracking system, UPS can monitor and even re-route packages
throughout the delivery process. At various points along the route from sender to receiver, bar
code devices scan shipping information on the package label and feed data about the progress
of the package into the central computer. Customer service representatives are able to check
the status of any package from desktop computers linked to the central computers and respond
immediately to inquiries from customers. UPS customers can also access this information from
the company’s Web site using their own computers or mobile phones. UPS now has mobile
apps and a mobile Web site for iPhone, BlackBerry, and Android smartphone users.

Anyone with a package to ship can access the UPS Web site to track packages, check delivery
routes, calculate shipping rates, determine time in transit, print labels, and schedule a pickup.
The data collected at the UPS Web site are transmitted to the UPS central computer and then
back to the customer after processing. UPS also provides tools that enable customers, such
Cisco Systems, to embed UPS functions, such as tracking and cost calculations, into their own
Web sites so that they can track shipments without visiting the UPS site.

A Web-based Post Sales Order Management System (OMS) manages global service orders and
inventory for critical parts fulfillment. The system enables hightech electronics, aerospace,
medical equipment, and other companies anywhere in the world that ship critical parts to
quickly assess their critical parts inventory, determine the most optimal routing strategy to meet
customer needs, place orders online, and track parts from the warehouse to the end user. An
automated e-mail or fax feature keeps customers informed of each shipping milestone and can
provide notification of any changes to flight schedules for commercial airlines carrying their
parts.

UPS is now leveraging its decades of expertise managing its own global delivery network to
manage logistics and supply chain activities for other companies. It created a UPS Supply
Chain Solutions division that provides a complete bundle of standardized services to
subscribing companies at a fraction of what it would cost to build their own systems and
infrastructure. These services include supply chain design and management, freight
forwarding, customs brokerage, mail services, multimodal transportation, and financial
services, in addition to logistics services.
In 2006, UPS started running the supply chains of medical device and pharmaceutical
companies. For example, at UPS headquarters in Louisville, Kentucky, company pharmacists
fill 4,000 orders a day for insulin pumps and other supplies from customers of Medtronic Inc.,
the Minneapolis-based medicaldevice company. UPS pharmacists in Louisville log into
Medtronic's system, fill the orders with devices stocked on site, and arrange for UPS to ship
them to patients. UPS's service has allowed Medtronic to close its own distribution warehouse
and significantly reduce the costs of processing each order. UPS and other parcel delivery
companies are investing in giant warehouses that service multiple pharmaceutical companies
at once, with freezers for medicines and high-security vaults for controlled substances.

UPS has partnered with Pratt & Whitney, a world leader in the design, manufacture, and service
of aircraft engines, space propulsion systems, and industrial gas turbines, to run its Georgia
Distribution Center, which processes 98 percent of the parts used to overhaul Pratt & Whitney
jet engines for shipment around the world. UPS and Pratt & Whitney employees together keep
track of about 25,000 different kinds of parts and fulfill up to 1,400 complex orders each day—
ranging from a few nuts and bolts to kits comprising all the parts needed to build an entire
engine. On the receiving side of the 250,000-square-foot building, UPS quality inspectors
check newly arrived parts.

Questions

1. How information technology help UPS firm to give best service to its customer and at
lowest rate ?
2. What would happen if UPS’s information systems were not available?