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CASE STUDYUPS versus FedEx: Two Competitors, Two Wireless Strategies

FedEx Corporation (FedEx) andUnited Parcel Service, Incorporated(UPS) are industry leaders in air andground package distribution and spe-cialized transportation and logisticsservices. The companies compete ona global scale and have establishedstrongholds on particular aspects ofthe shipping business. UPS achievedits status primarily on the strength ofits time-definite ground delivery ofpackages and documents. FedEx tra-ditionally attributes its success andreputation to its unmatched perfor-mance in overnight deliveries. UPSdelivers an average of over 13 millionpackages each day. FedEx averagesapproximately 5 million daily deliver-ies, but surpasses UPS in air deliver-ies, 3.1 million to 2 million. The tworivals have grown out of very differentbeginnings to occupy their currentstandings in the marketplace. As tech-nological advances enable UPS andFedEx to carry their respective busi-nesses to greater heights, the evolu-tion of the technology has them walk-ing a fine line between fanning theflames of competition and growingside by side.

Nearly a century old, UPS hasgrown from a two-man, two-bicycleoperation in Seattle that promisedthe “best service and lowest rates”into a 355,000-employee corporategiant with a delivery fleet of 88,000ground vehicles and nearly 600 air-planes. The fleet services 1.8 millionshipping customers daily, bringingdeliveries to 6.1 million consignees.UPS first expanded to Europe in 1975.In 2003, UPS revealed a $600 millionimprovement initiative for its packagesorting and delivery systems. By 2007,UPS expects this initiative to result ina $600 million annual reduction inoperating costs, mostly as a result ofproductivity improvements and moreefficient driving routes.

UPS counts global reach, tech-nology systems, customer relation-ships, brand equity, and e-commercecapabilities among its competitivestrengths. The company’s growth

strategies include building on its sta-tus as the leader in domestic packageoperations, continuing to expandinternationally, offering comprehen-sive supply chain solutions to busi-nesses that seek to outsource such acomplicated business component, andbacking up the core delivery servicewith a strong portfolio of e-commercesolutions. UPS.com fields more than 9 million requests for package trackingeach day, and the Web site receives115 million daily hits overall.

FedEx Corporation is the parentcompany of the various operatingcompanies under the FedEx name,which include FedEx Express, FedExGround, FedEx Freight, FedEx TradeNetworks, and FedEx Services. FedExExpress, the corporation’s time-certainexpress delivery service, was foundedin 1971. The corporation as a wholeemploys 216,500 workers and con-tractors, and 134,000 of thoseemployees serve FedEx Express as itprovides delivery services to 214countries using 53,500 drop-off loca-tions, 643 aircraft, and 48,000 roadvehicles. FedEx Ground recentlybegan a six-year, $1.8 billion expan-sion initiative that by 2009 will dou-ble the company’s capacity to processground packages, currently at 2.5 mil-lion daily.

The growth strategies of FedExinclude increasing high-tech and high-value-added business goods, global-ization, acceleration of the supplychain, and continued expansion ofInternet and e-commerce solutions.The corporation views its brand as astrong business asset and uses it toprovide customers with an integratedset of business solutions, includingthose available from FedEx.com.

As UPS and FedEx continue tojockey for position in each other’sstrongest market domains, it is clearthat the two companies take differ-ent approaches to the same goal.Both, like any company that is seek-ing to grow, look to increase the effi-ciency of their operations. Improvedefficiency generally results from cut-

ting costs of business processes andextending the usefulness and capa-bilities of resources beyond currentexpectations. One of the most im-portant ways that UPS and FedExhave improved their businessessince the late 1980s is through theuse of wireless technologies. Thecompanies take on contrasting per-sonalities in their implementationsof such technologies.

FedEx acts more like a startup busi-ness, jumping at the chance to adoptthe latest and greatest applications assoon as they prove to be economicaland effective for both the companyand its customers. UPS, on the otherhand, adheres to a more measuredschedule of new technology rollouts,generally waiting from 5 to 7 yearsbetween major initiatives. Thisapproach enables UPS to revamp itssystems with uniform upgrades thatcan replace segments of the old sys-tems in phases.

Their approaches, however, are notdiametrically opposite. UPS is willingto make intermediate technologychanges to take advantage of oppor-tunities, whereas Fed Ex tries tomakes sure its adoptions have long-term viability and support its criticalpriorities. And regardless of approach,FedEx and UPS have determined thatwireless technologies have a majorimpact on their key businessprocesses, especially package pickupand delivery transactions and thephysical packaging and sorting ofpackages.

Fifteen years ago, deploying wire-less technology generally requiredcontracting with a technology vendorto develop proprietary systems. Suchsystems were costly because they hadto be developed from the ground upand neither company had the existinginfrastructure or bandwidth to sup-port wireless technology at the outset.These days, UPS and FedEx havetaken advantage of wireless solutionsbased on global standards. Both com-panies use the Bluetooth short-rangewireless specification, 802.11b wireless

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LANs, and general packet radio ser-vice (GPRS) cellular networks to vary-ing degrees. The fact that these tech-nologies are available off the shelftranslates to greatly reduced develop-ment costs, easier maintenance, bet-ter capacity and security, and lowerimplementation costs.

For companies such as FedEx andUPS, reducing the time required tomake every delivery by even one sec-ond can have an enormous impact onthe cost of doing business across theboard. Wireless technology hasbecome the driving force behindmaking such improvements in effi-ciency possible. Not surprisingly, bothcompanies have devoted sums inexcess of $100 million to wireless ini-tiatives. Wireless technology bringsUPS and FedEx as close as they cancome to having real-time data avail-able for their operations. Putting wire-less handheld devices in the hands ofdelivery personnel enables theseworkers to complete their tasks morequickly and provide an elevated levelof customer service.

At UPS, drivers carry a handheldunit called a Delivery InformationAcquisition Device (DIAD). The cur-rent version of the device is the DIADIV, which, like its predecessor, theDIAD III, can connect to UPS opera-tions centers directly using cellulartransmitters in the delivery trucks.Therefore, information from pickupand delivery transactions that is gath-ered by personnel in the field can betransmitted to the company’s globalnetwork almost immediately.

UPS plans to augment the powerof its handheld units by addingBluetooth capabilities to them. Theupgrade will enable the devices toconnect the handhelds to the trucksand to run applications, such as creditcard transaction processing, in areaswhere an adequate GPRS cellular sig-nal is not available. John Killeen, thedirector of global network services forUPS, admits that the full scope ofBluetooth’s usefulness to the newDIADs is not apparent yet, but thereasonable cost and potential of theimplementation make it worthwhile.UPS is also looking to improve cus-tomer service by adding GlobalPositioning System (GPS) tracking

technology to the DIAD IV units. Thistype of tracking would facilitate ser-vices such as rerouting packages thatare already in transit by the most eco-nomical route.

The FedEx equivalent of UPS’sDIAD is the PowerPad. Like theircounterparts at UPS, FedEx driversuse the handheld PowerPad to scanpackages for pickup and deliveryinformation. The method that FedExuses to transmit these data to head-quarters differs slightly, however.FedEx had previously equipped itsvehicles with cellular transmitters forthis purpose. When the companyrolled out the PowerPad handhelds, itdecided to keep the cellular transmit-ters and have the handhelds uploadtheir data to the transmitters usingBluetooth. Because drivers previouslyhad to dock their handheld unitsphysically in the transmitters to trans-mit data to home base, the PowerPadwith Bluetooth still provides FedExwith significant time and cost savings($20 million per year) even though itdoes not provide a direct connectionto the company’s central systems.

The PowerPad units have othertime-saving features as well. Forexample, FedEx drivers can lock andunlock drop boxes using an infraredsignal from the PowerPad instead of akey. Because infrared signals requirethat the communicating devices lineup to each other’s apertures unim-peded, FedEx would like to improvethis time-saving measure further byusing a Bluetooth signal instead ofthe infrared signal. First, FedEx mustaddress issues related to how much itwould cost to deploy and maintainBluetooth in the drop boxes. Takingthe technology another step further,FedEx hopes that using Bluetooth inits drop boxes will eventually permitdrivers to pass by empty drop boxeswithout having to check them.

Again, there are technology chal-lenges to overcome: a drop box couldbe “silent” because it is empty orbecause the battery in its Bluetoothtransmitter is dead. Other plans forthe future of the PowerPad includemaking it 802.11b-enabled to main-tain compatibility with Microsoft oper-ating systems and adding informationlook-up and retrieval features so that

delivery personnel can provide cus-tomers with better and more detailedinformation on topics such as packag-ing rules and regulations, supplies,and rates.

FedEx and UPS are also seeing thebenefits of wireless technology intheir sorting facilities and distributioncenters. The main hubs for FedEx, inMemphis, Tennessee, and UPS, inLouisville, Kentucky, are huge facilitiesthat process millions of packagesevery day. For both companies, lower-ing the cost of sorting these packagesat their main hubs and smaller cen-ters is an important business consid-eration. To collect package data dur-ing sorting, UPS and FedEx both use aportable ring scanner, which consistsof a finger-mounted bar code readerthat is connected to a terminal. Theuser wears the terminal on his or herforearm.

UPS will soon complete the rolloutof a new scanning unit that places theterminal on the user’s waist.Employees prefer this locationbecause it results in less physicalstress over the course of a workday.Additionally, the new scanners willuse Bluetooth for communicationbetween the finger-mounted bar codescanner and the waist-mounted ter-minal. Workers at UPS sorting facili-ties scan packages as they load themonto trucks. It was not unusual for thecables connecting the two pieces ofthe old scanners to get caught andbreak during the loading process. Thenew scanners will reduce UPS main-tenance costs by 30 percent, spareparts costs by 35 percent, and down-time by 35 percent. Also, once turnedon, the scanners are in an always-onmode and do not have to be triggeredfor each bar code read, as the old ringscanners did. The scanners can alsotransmit data to the company systemin real time, so UPS inventory systemscan flag issues and report morequickly to customers. (The old sys-tems stored the data and transmittedthem in periodic batches.) During thenext four years, 55,000 scanners willbe rolled out to about 1,700 facilities.

FedEx has not yet found the needto replace its current ring scannermodel. Despite the company’s inter-est in increasing its volume of ground

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package shipping, smaller packagessuch as envelopes still account for themajority of the business. Therefore,FedEx requires fewer people to han-dle boxes, uses fewer ring scannersthan UPS, and is not adverselyaffected by the costs associated withthe equipment. FedEx also has founda problem with implementingBluetooth because its signals interferewith the operation of the 802.11bnetwork that the company installedonly three years ago. UPS avoided thisproblem by upgrading its new scan-ning system all at once and designingdevices and access points to usetime-division multiplexing to alternatebetween 802.11b and Bluetooth sothat signals don’t conflict.

Other wireless technology areasthat UPS and FedEx are consideringinclude radio frequency identification(RFID) and Global Positioning System(GPS) applications. RFID tags wouldreplace bar code scanning entirely,whereas GPS would enable precisetracking of drivers, vehicles, andpackages in the field. Even thoughseveral industries have begun usingRFID for shipping and supply chain

management, for now, it remainscost-prohibitive for such companiesas UPS and FedEx. They have manycustomers who operate on smallbudgets. Although having these cus-tomers print their own bar codes isquite reasonable, asking them tocreate RFID tags requires a muchheavier investment. However, accord-ing to Winn Stephenson, FedExServices’ senior vice president of ITfor technology services, adoption ofRFID seems inevitable; it’s just amatter of timing.

One significant challenge thatremains for UPS and FedEx is design-ing applications that conform to thenarrower bandwidth that is character-istic of wireless networks and thatprovide fault tolerance for discon-nects. Despite these issues, bothcompanies would insist that thedynamic transfer of data that wirelessconnectivity provides has them poisedto continue as industry leaders.

Sources: Galen Gruman, “UPS vs. FedEx:

Head-to-Head on Wireless” and “New

Technologies Hit Mainstream,” CIO

Magazine, June 1, 2004; “RFID Adoption

Survey: Current and Future Plans,” CIO

Magazine, June 30, 2004; Dean Foust, “Big

Brown’s New Bag,” Business Week, July 19,

2004; Robert Carter, “Six Degrees of

Preparation,” Optimize Magazine 22 (January

2004); Mark Samuels, “UPS Wireless Plan

Reaches Europe,” VNU, www.vnunet.com,

June 30, 2004; United Parcel Service, Inc., 10-

K Report, www.ups.com; FedEx Corporation

10-K Report, www.fedex.com.

CASE STUDY QUESTIONS

1. Analyze UPS and FedEx using thecompetitive forces and value chainmodels.

2. How are wireless technologiesrelated to the core information sys-tems and business strategies ofUPS and FedEx? How do thesetechnologies provide value to thesecompanies?

3. How do the implementations ofwireless technology reflect theorganizational differences betweenUPS and FedEx? Which wirelessstrategy is more effective? Explainyour answer.

4. How will wireless technologieshelp UPS and FedEx in the future?

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