Competition takes FedEx and UPS to the forefront of technological innovation

Rethink IT, July, 2004

In the realms of supply chain management, few companies are as dependent on the efficiency of their chains than international courier operations, and this has put arch rivals Federal Express and UPS in the forefront of technological innovation. "The information about a package is as important as the delivery of the package itself," said FedEx founder Frederick Smith in 1979, and both his company and its competitors have taken the dictum to heart.

The two companies are increasingly competitive as their core businesses overlap. UPS is encroaching on FedEx' primary speciality, ground delivery, while FedEx, in turn, is moving into UPS's overnight delivery turf.

Both are unusual among corporations in regularly briefing shareholders and analysts about their IT systems, accepting that these are critical to their business performance, and both invest significant percentages of their turnover in technology. Most recently, the fashionable technologies of wireless networking and smart tagging have been incorporated into their strategies, with lessons that can be learned by any company involved in managing complex logistics and supply chain with fast turnaround times and precise deadlines.

In the past two decades, FedEx has acquired a reputation for implementing cutting edge technology, while UPS has been more cautious. The former deploys new technologies as soon as they can be cost justified in terms of improve efficiency and customer service. The latter has a five to seven-year cycle for upgrading its technology base, rolling out an integrated system.

SUPPLY CHAIN

A survey of US business executives, sponsored by UPS, found that most companies still believe supply chains are inefficient, and 65% said that the 'next frontier' would be synchronizing the entire interaction between vendors, customers and suppliers, not just optimizing small pieces of the process. This is what Gunnar Adalberth, director of ecommerce marketing at UPS Europe, calls "visibility--or the real time ability to view the movement of goods and funds as products move through the supply chain".

UPS has built massive IT networks over the past two decades to help capture and use real time information. These networks make transparent the movement of goods inside corporate supply chains, as well as the movement of packages inside UPS's global network. They support everything from the rapid dispatch of spare parts needed to repair customer equipment to the real time transfer of funds as a package is delivered. Now it aims to shave time and money off the operation of the chain using emerging wireless standards.

WIRELESS IS KEY

Wireless is a key element of both companies' approaches and both believe implicitly in its ability to reduce their costs, improve their efficiency and increase their customer satisfaction ratings.

Both companies have had wireless strategies since the late 1980s, based on proprietary platforms and processes, but in recent years they have started to move to standards as these have evolved, including Wi-Fi, Bluetooth, cellular networks and, just coming onstream, GPS satellite location systems and RFID smart tagging.

Federal Express claims to have been the first transportation company to adopt wireless technology more than 20 years ago.

It allows customers to access package tracking and drop-off location data for consignments via web-enabled devices such as WAP phones, PDAs and pagers.

FedEx also uses wireless data collection devices to scan bar codes on shipments. On average, FedEx Express and FedEx Ground packages are scanned at least a dozen times from pick-up to delivery, using barcodes, and the company is looking at the use of RFID smart tags, which contain a higher degree of intelligence and make tracking packages easier.

"Wireless data connectivity is something we've done for many years. But we had to provide our own bandwidth and we had to develop technology to manage it. Now that commercial products are out there, we have alternatives," FedEx' executive vice president and CIO Rob Carter says.

Wireless, like most aspects of the supply chain and the crucial areas of pick-up and delivery, may be increasingly based on off-the-shelf technologies, but it is believed to give the companies competitive edge. "You only have a six-month advantage in this industry. The technology is not a secret, it's what you do with it," UPS CIO Ken Lacy told News.com.

FedEx, true to its tradition of early adopting, deployed wireless networks in 1999, while UPS waited until 2003 to begin updating its various wireless technologies all at once as part of a larger program to improve package scanning and tracking.

WIRELESS TECHNOLOGY

The two couriers are spending about $120m each over three to five years on wireless, out of a budget of about $1bn a year apiece. Wireless technology in the field is the best way to ensure the real time data on which the companies rely to manage their operations, and since both operate on a global scale, standards have made a significant contribution to lowering the total cost of ownership of the systems and making them more efficient, especially when they need to be integrated with those of partners and customers.