Big Brown Boots Up
Donlon, J. P., Chief Executive (U.S.)
Internet companies are very hot now. That's nice. But maybe the biggest e-commerce player isn't Microsoft, Intel, AOL, Amazon, or the dot com de jour stock the punters are talking up.
While most companies are adapting to the Internet, UPS sees an opportunity to get a head start against industry rivals, such as Federal Express, DHL, and the government-backed competitorsU.S. Postal Service (USPS) and the PTT's around the world-with which it competes. Last June, the Atlanta-based, privately held firm with approximate 1998 revenues of $25 billion launched Document Exchange, a service that zips documents via the Internet in seconds rather than relying on planes, trains, or the company's ubiquitous delivery vans. Until then, someone sending sensitive material had three options: Pay a delivery service, fax it, or use e-mail. The latter two lack confidentiality, and observers have noted that up to 30 percent of faxes must be resent.
FedEx and DHL already allow customers to track packages on the Internet. But UPS's entry into on-line services is the first step into the next level of e-commerce, says James P. Kelly, the company's chairman and CEO. Relying on software created by Tumbleweed Software and Net Dox, UPS uses encryption technology that gives customers with Web access a digital fingerprint so that only the sender and receiver know what is sent, who sent it, and when-unlike e-mail and materials sent over the Web. The price ranges from $1 to $10-well below UPS's $12 minimum for package delivery. Is UPS crazy to cannibalize its core delivery business? Maybe. On the other hand, if analyst predictions that up to one-third of documents will be cvberdelivered by next year are correct, maybe it's not.
Big Brown, which has spent $9 billion on IT over the last decade, is beginning to rival Big Blue as a technology contender. Last year, it invested $1 billion on IT, more than it spends on vehicles and nearly as much as it spends on airplanes. (With the fleet of 271 aircraft UPS owns or has on order, plus the 300 it charters, it runs the 10th largest airline in the U.S.) Its global telecom network, which links a quarter of a million users in 70 international locations, makes UPS the largest user of cellular technology in the world. Currently, more than half of all shipment order information from customers comes into the company electronically. Considering that UPS deals with 1.6 million customers who ship 12.1 million packages and documents daily, that's saying something.
The company is also testing new technology that will enable drivers to transmit shipment information instantly to its mainframes. The backbone of all UPS's information services consists of two data centers with 14 mainframes and a global network called UPSnet. In fact, the company claims it operates the largest DB2 mainframe database in the world-larger than that of the U.S. Census Bureau. In the first quarter of 1999, UPS plans to roll out a new Internet service that will allow anyone with Web access to place a shipment order to send a package anywhere in the world.
But of all UPS's activities, its worldwide logistics unit (WWL), growing at an annual rate of 42 percent in revenue, is where the folks in Atlanta are training their high-tech guns. UPS is taking on the supply chain activities of many companies. It's given software-connecting data to leading ERP software firms, such as SAP, Oracle, and PeopleSoft, to create a seamless interface between a shipper's own system and UPS's network. WWL's latest entry is creating software for supply chain needs of specific industries, such as multiunit hospitals.
WWL already undertakes the outsourcing distribution of companies, including GNB Technologies, a manufacturer of lead acid batteries, and AlliedSignal's automotive products group, which makes Fram filters and Bendix and Autolite products. It's estimated that of about $1 trillion in inventory, up to half of that value can be freed up through better supply chain management. …