CALCUTTA BUSINESS SCHOOL
Strategic Planning at UPS Submitted Towards Partial Fulfillment of PGDM Program Submitted By: Navneet Daga(08015) Shishir Saralesh(08022) Soumik Mukherjee(08024) Sourabh Kumar Saha(08025) Sudipta Das(08027)
Strategic Planning at United Parcel Service
Abstract: This paper provides an analysis and case solution to a Harvard Business School case study on United Parcel Service (UPS). As it celebrated its eightieth anniversary in 1987, small package delivery king UPS faced a rapidly changing external environment which challenged the company¶s longestablished human resources management policies and threatened to disrupt the organizational culture that many believe is key to UPS¶s success. The analysis:
Identifies
and discusses the key issues and problems related to the fit between UPS¶s current
business strategy and its HR strategic plan and pra ctices.
Formulates
an HR strategic plan to resolve these key issues and discusses how the proposed plan
will support the current business strategy; and 3) elaborates on the staffing components of the proposed HR strategy . History It
was formed formed in 1907, by 19-year-old Jim Casey. Originally, Originally, focused on delivering messages in Seattle . Over the 98 years since its founding, it had transformed itself several times. Several Transformat ions: From messages to package delivery To international air transport company Finally, in the 1990s, to a logistics company y y y
About the company y
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The United Parcel Service (UPS) delivers more than 15 million packages a day to about 6.1 million million customers in 200 countries around the world, making making it the world¶s largest largest package delivery company UPS is headquartered in Atlanta, Georgia and operates primarily in the United States with about 428,000 employees UPS¶ slogan ³What can Brown do for you´ emphasizes the company¶s ability to provide services to almost almost any one in the world, at any address Before the $42 billion billion company grew into a worldwide name, name, it it was started as a small small messenger company in 1907 by two aspiring teenagers, Jim Casey and Claude Ryan in Seattle, Washington Washington with just $100 Top competitors of UPS include Federal Express (FedEx), DHL International and the United States Postal Service
Calcutta Business School
Strategic Planning at United Parcel Service
Background
of the Company In 2006, it was a $37 Billion corporation. It is world¶s largest package-delivery company. The company was leader in specialized transportation and logistics and it Serves 200 countries. It had a 3,500 retail locations via purchase of Mail Boxes, etc. and employs 384,000. The company operates one of the 10 1 0 largest airlines Organization y y y y y
CEO is Mike Eskew The organization is centralized, hierarchal with traditional t raditional structure at the top Senior management and staff sta ff set direction, priorities, priorities, budgets, and initiatives initiatives Tactical at the regional level and a nd is strategic at the corporate level Low levels of autonomy at the t he regional level is also observed
Competitors Private postal companies ± Federal Express Large government-supported agencies ± USPS ± Deutsche Post
Until 1994, UPS had so heavily concentrated on continuously improving its operations that it had compromised on quality and customer service. Many analysts commented that UPS did not pay attention to customer needs and customer satisfaction. In 1994, due to increasing competition, UPS realized the need to be more customer responsive and embarked on a major corporate transformation initiative. This case gives a detailed overview of the various human resources initiatives that UPS Culture
³Consensus building´ and was focused on efficiency and execution. It believed in continuous improvement of company. Strong values: service excellence, employee employee ownership, commitment commitment to stability Low employee turnover, loyal workforce The Logistic Business Prospect
The alliance between air freight companies and ITES companies will bring bring exponential growth to the Air Freight industry. This industry should remain attractive, with concentration on competition for for market share, share, service service differentiation, and brand brand image. Current Current Advertising Advertising has been aimed at being being better than the competitor for for different reasons.
Calcutta Business School
Strategic Planning at United Parcel Service
UNITED
PARCEL SERV ICE
Movement
of Goods Transport packages for the average consumer. Takes on Business¶s supply chain needs in more than 200 countries. The UPS small package network transports 13.3 million packages and documents every day. UPS Airlines is the 11th largest airline in the world 1700 small package facilities (750 Distribution Centers). Utilizing ships, planes, trains and trucks. The goal is to optimize loads, minimize costs and enhance reliabili re liability ty
Movement
of Funds
UPS Transportation Services provide the following financial benefits: Products offered by UPS Capital include C.O.D. accelerated payment services, working capital, commercial financing and insurance. I mproved supply chains, when combined with financing from UPS, can lead to improved cash flow, lower capital requirements, minimized duties and taxes and quicker cash receipts Providing Business¶s with immediate shipping information allows accounting functions, to bill and receive payments more quickly. UPS Consulting redesign supply chains to strengthen a company's balance sheet. Evolution of Strateg ic Planning at UPS In
1997- reviewed to bring long-range planning approaches. Brought in consultants from Global Business Network to facilitate a set of scenario-planning workshops. . Axes of uncerta inty Participants, primarily UPS managers representing different functions and generally reporting to a Management Committee member, went through several hours of discussion over driving forces and critical uncertainties. The vertical axis : Demand Characteristics Charact eristics Horizontal Horizont al Axis : Market Environment Market Environment varies from international to local and regional factors Demand characteristics vary from traditional consumers to pro-sumers. They produced various scenarios with a complete picture of ever changing and dynamic competition Results of these meetings: Tangible and intangible solutions. Change in the company¶s purpose from serving the package-delivery needs of customers to enabling global commerce. Defining themes for future: Proactive shift directly to the end consumer, eliminating usage barriers; Leveraging this end-consumer positioning to win additional business-to-busin business-to-business ess customers within the demand chain; y y
Calcutta Business School
Strategic Planning at United Parcel Service
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Focus
on customer solutions that integrated goods movement and financial and information services; dentification of opportuni o pportunities ties to be selectively captured across entire demand chains, with Identification integrated solutions between companies; and Maintenance of a global growth perspective.
Strategic Plans: Four Strategic Imperatives: Winning Team: attracting and developing a highly skilled, diverse, and aligned global workforce y
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Value-Added
Solutions: providing customers with value-added services combining movement of goods, information, and funds Customer Focus: building customer loyalty and expanding UPS¶s services worldwide Enterprise Excellence: creating an environment of high-quality service and value
The Four Scenarios Tangled Paths Highly competitive business environment Strong regional and national nat ional regulations Desire for more variation in products Regressive World Strong regional and national nat ional regulations More traditional supply chain, competitive landscape, and set of consumers Global Scare Preva ils Slow adoption of new technology due to stable demand More traditional consumers and industry consolidation Brave New World Deregulated globalized marketplace Mass customization of goods and services to proactive consumers New forms of competition and virtual organizations²alli o rganizations²alliances ances and business bus iness webs y y y
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SWOT ANALYS IS Strengths: UPS had the goodwill of being a Global brand The company had a Strong distribution network Weaknesses: Perception of ground delivery de livery instead of overnight Heavy union presence Opportunities: Expansion of online shopping Emergence of international middle class Threats: Increasing fuel costs y y
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Calcutta Business School
Strategic Planning at United Parcel Service
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Competitive landscape (DHL, FedEx) Potentially slowing global economy
FUNCTIONAL ANALYSIS Market ing:
UPS is targeting a global market of producers and consumers, while making a move to become the supply chain integrator of choice in e-commerce. They offer products and services that are state of the art in logistics, which include the use of bar codes and R FI FID, high speed package routing systems, and consulting services. UPS charges package prices that are in alignment with the industry and is willing to raise prices alongside FedEx. It has been able to charge fuel surcharges successfully. A sales force is maintained to reach business customers and producers crucial to UPS¶ mission in expanding its role in logistics to become the supply chain integrator o f choice. There are 150,000 different places to access access UPS, worldwide. Customers Customers can reach them by phone, web, retail outlets, customer service centers, distribution centers and any of the drivers will pick up packages. This level of reach to customers is necessary if UPS expects to gain market share from FedEx. (Operations\Tech)
Highly integrated operations support product offerings to offer low cost delivery operations. UPS is seeking to integrate into freight with larger haul trucks and it is adding capacity in Asia and Europe with acquisitions of Sinotrans, a Chinese joint venture and Stolica, a Polish parcel and expresses company. UPS is the 11th largest airline world, with nearly 600 planes, 15 airport hubs worldwide and 900 airports served. Connecting these airports hubs to customers are 1,750 distribution facilities that sort packages into 90,000 trucks for deliveries to the home, office, and 72,000 retail outlets. All this requires the integration of air, ground, logistics and trade financing that UPS maintains is a key co mpetitive strength. Human
resource
A high sense of culture and esprit, stock participation plan, and promotion opportunities contributes to a low turnover rate of employees. The company is managed from a highly centralized Management Committee organized along for the most part in to functions as opposed to business units. There are business unit presidents in the Management Committee but only to the extent that the business unit is organized at a global global or firm wide level. UPS is the US¶s 3rd largest employer with nearly 400,000 employees e mployees worldwide. Finance
Highly liquid company has been investing at a faster rate than returning cash to investors, which are for most employees. The company is highly liquid with 1 ½ times the cash necessary to cover current liabilities. UPS increased its dividends at 20% per year for the past five years with an
Calcutta Business School
Strategic Planning at United Parcel Service
even higher growth in the rate it has been buying back stock, at 47% over the same period. The firm has been paying down debt over the last five years while steadily increased Fixed Assets and Working Capital, in line with developing the infrastructure to support the latest in logistics technology and their customers¶ push towards JIT manufacturing. Over the past five years, Working capital has increased 24% per year. The firm¶s capital structure is in line with a company that has been run by traditional long time employees. 50% of the capital structure is equity with the remaining sources of capital split between current liabilities at 20% and long term debt at 14%. The company is investing its cash in to Working Capital. The evidence there is a 28% growth rate in cash versus a 14% rate for Retained Earnings, which is experiencing a decelerating growth rate for the past five years. STRATEGIES ADOPTED BY UPS
They were investing in the core business of worldwide distribution and logistics. Company was building competencies in the integration of goods, funds, and information. They were using technology to create new services. They started attracting talented people. Studying customer behavior and anticipating their needs. Practicing innovation that leads to growth. Developing an environment that enables enables them to treat each customer as if he or she she were the only one. UPS
Distribution System
Hub and Spoke System Consolidation Collection of Parcels. Traffic trends and road conditions are continuously monitored to insure that the optimal path is taken. From his/her truck, the driver has access to a hand-held computer device (DI AD) that captures information about each packages and delivery. The parcels are then assembled at the closest distribution center. Distribution On a hub to hub basis, depending on the distance involved, the mode used between hubs will either be by trucking or air. Commonly, trucks are dominantly used for distances less than 400 miles (600 km). k m). The main air hub is Louisville, Kentucky, which handles over 100 10 0 flights a day. Fragmentation Parcels have to be delivered to each individual destination. Fragmentation is combined with consolidation as a delivery truck route can be integrated with a pickup route. This can be achieved only with a high level of control on the logistical chain. Scenario Planning
The Horizon 2017 session, as it came to be called, was similar to the 1997 session in format and process, with three important variations.
Calcutta Business School
Strategic Planning at United Parcel Service
First,
Eskew and the CSG decided to take the scenarios and implications deeper, to regional levels as opposed to a single global picture. Second :Extensive interviews, perspective of academics, consultants etc A third variation involved participants. As before, participants from operations were excluded. Scenarios These axes formed the framewo framework rk for for four scenarios y
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The upper-left quadrant was the t he ³Company City´ future dominated by large corporations, with a growing middle class and the proliferation of powerful, integrated supply- focused technologies. Lower-left quadrant described a ³Bordered Disorder´ world, with a highly regulated, protectionist environment with slow growth in developing nations, guarded intellectual property and technology, and an increase in security threats and environmental and financial shocks. Lower-right quadrant, ³Connected Chaos´ defined a future full of global unrest , ³amoral´ commerce, and informal connectivity that was difficult for governments to control. Upper-right quadrant, called ³Networks without Borders,´ defined a highly connected, stable world with low barriers to market entry and fast-moving technologies aimed at consumers.
UPS has remained the leading shipping/logistics firm for a long time. Their integration of the latest technology has kept them differentiated as well as the cost leader. Consumers and business¶s both rely and trust UPS with their shipping and consulting services.UPS has been aggressive in finding new revenue streams with existing and new customers. They understand not only their customers and related needs, but have also figured out ways to deliver more value. They have expanded the roles they can play in the overall value web by leveraging their infrastructure and expertise. ___________________________________________________________________________
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