UPS, Inc. Strategy Formulation

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UPS, Inc. Strategy Formulation

Susan Harman

MGT485-1005B-39 Global Strategic Management

27 February 2011

American InterContinental University Online

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Abstract

United Parcel Service, Inc. (UPS) began in 1907 and is now headquartered in Atlanta, GA, USA;

a global principle in the air delivery and freight service industry. Transportation, logistics, and

financial services are offered by the organization. UPS is a leader in the U.S.A. for the offering

of common carrier services; initiated the conveyor belt packaging handling system; air services;

through acquisition was the first to offer the same day, next flight out serve, and overnight

delivery with a delivery guarantee at 8 a.m.; first organization that delivered packages to all

addresses in the continental USA.; the first to go paperless for international shipping and

package return; and today serves 220 countries and territories with facilities in over 120

countries and territories. Strengths, weaknesses, opportunities, and threats (SWOT) analysis has

identified the internal and external factors that are important for the organization to build upon,

overcome, exploit, and deal with. UPS shows profit growth by utilizing their competitive

strategy to gain the competitive advantage through its network to afford solutions for consumers.

UPS needs to continue with expansion into budding markets at the same time as validating their

logistics capabilities globally with the commitment to the environment and to people.

UPS, Inc. Strategy Formulation

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United Parcel Service, Inc. (UPS) is an organization in the package delivery business

which provides conveyance, movement management, and financial services globally. The

organization functions in three business sectors: “U.S. Domestic Package, International

Package, and Supply Chain & Freight” (UPS, 2011). The U.S. Domestic Package sector actions

comprise a set time of delivery of correspondence, documents, and parcels within the United

States (US). International Package sector is the provider of delivery via air and/or ground for

packages which are small and/or correspondence to no less than 200 countries and territories.

These include deliveries that can originate and/or be distributed within or outside the US; as well

as export services; and national services which permit the transfer of shipments inside

boundaries of a country. Supply Chain & Freight sector presents forwarding and movement

management actions, together with “supply chain design and management, freight distribution,

customs brokerage, mail, and consulting services; and less-than-truckload and truckload

services” to North American consumers (UPS, 2011). Other methods of resolving difficulties

include technology concerning automated transport, public prominence, and business

transactions; computer based hardware and software systems, communications systems which

enable the acquisition, representation, storage, transmission, and the use of information to a

variety of industries, including “healthcare, technology, and consumer/retail; and a portfolio of

financial services that provides customers with short-term working capital, government

guaranteed lending, letters of credit, global trade financing, credit cards, and export financing”

(United Parcel Service, Inc., 2011).

Impression

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According to UPS, Inc. Form 8-K filed with the U.S. Securities and Exchange

Commission (SEC) on February 1, 2011, 3.9 billion packages were delivered by the organization

in 2010. This action assisted in the profit increase from the 2009 year by 9.4% with 2010 seeing

a profit of $49.5 billion. The adjusted operating profit realized a gain of 47%, $5.8 billion with

the International Package sector producing $1.9 billion, and the Supply Chain and Freight sector

producing $577 million. UPS saw a 55% increase in the operating profit for the year 2010, $5.9

billion (SEC, 2011).

The 2010 year revealed that $3.1 billion in free cash flow was produced; this is after

placing $2 billion in progressive payments to distinct benefit pension plans during the last

quarter of the year. The organization also spent $1.4 billion in capital expenditures; paid

dividends of $1.8 billion; and repurchased 12.4 million shares of stock around $800 million

(SEC, 2011).

USA Domestic Package sector experienced operational increase in profits of 37% on the

income growth of 7% which is attributed to greater yields, efficiency in operations, and growth

in volume. Income improved on each piece by 3.5% which is a result of the increase in the base

pricing and greater fuel surcharges. Customers in the USA have responded positively to the UPS

Smart Pickup service, a service that offers the convenience of a one time or occasional scheduled

pickup. This is a high tech service and is one in the group of environmental responsible services

in which the UPS drivers are alerted for a pickup (SEC, 2011).

International Package sector experienced operational increase in profits of 15% on an

income growth of 9%. The margin of operations increased to 17.6% due to the growth in

volume, improvement in yield, and exceptional management of costs. The daily average of

exports grew by 8.7%. There was increased growth from the main countries involved in export;

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China increased more than 30% and Germany leading Europe in gains. The International

package volume increased 13.6%; 2.3 million packages each day which shows how UPS global

operations have the capacity advantage in the market with Asia being the example of air

transport with an increase of 40%. UPS also position technology for the fast growing mobile

user market with UPS Mobile Apps and mobile Web site being availed to consumers in Canada,

France, Germany, Italy, and the United Kingdom (SEC, 2011).

Supply Chain and Freight experienced a 13% increase in operational profits which

increased the adjusted operating margin for this sector to 7.7% which is a result of contributions

from all business units. Freight was the market leader with a 23% income gain due to the greatly

increased daily transports, carrying greater gross weight and improvement of the yield.

Forwarding and Logistics income gained 10.1%, $1.6 billion, due to the provided management

initiatives in the Forwarding sector. The year was nearing the end when UPS advised of

significant growth of its “global healthcare distribution facility network in the U.S., Asia,

Europe, and Canada” for accommodation of the fast growth being experienced in “its healthcare

business” (SEC, 2011). Facilities have been created for meeting the needs of “pharmaceutical,

biotech, and medical device companies” (SEC, 2011).

In 2010 the U.S. Domestic Package sector experienced a $98 million expense due to

restructuring in regards to reorganization of this management structure, as well as $109 million

increase from real estate sales, which is not included above. The Supply Chain and Freight

sector profit and income does not include the $71 million increase from disposing of UPS

Logistics Technologies and the $51 million decrease/loss from a German transportation business

(SEC, 2010).

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UPS is the leader in the Air Delivery & Freight Services industry with FedEx being a

principle competitor. Even with the strong competition, expansion occurred with the new Intra-

Asia hub, which is just a piece of the world port expansion plan. Strategic alliances have been

formed in the emerging global markets which are achieved by growing developing lines of

business and the addition of China’s Service Parts Logistics locations network. i.e. Vietnam,

Malaysia, and Indonesia. The growth in Asia has seen the capacity increased by 40%, but the

U.S. Domestic Packaging sector has been streamlined (Yahoo, 2011).

During 2010 the global communications system was introduced. It is perceived that

emerging markets must be identified with strategic alliances being formed with those who have

experience in the sector. Relationships must be expanded; products and services must be

prepared for relocation in order to meet the need(s) of exporters; transcontinental products;

domestic operations; Forward and Distribution operations; and warehousing and fulfillment.

(Yahoo, 2011).

Over the last several years, UPS has received numerous technology awards. The Irish

Logistics and Transport Awards – Technology Awards was received in 2010 for paperless

invoice (The Irish Logistics & Transport Awards 2010, 2010). The other awards for technology

and innovation were received in prior years. Technology plays a key role at UPS as various

sized organizations utilized the transportation services which include those who export and

import products, as it assists in streamlining their supply chains globally whether by air, freight,

and/or ocean (Technology Takes Off at UPS to Simplify International Shipping, 2010). Awards

have been received as a result of the strengths and the opportunities to which they have been

afforded.

SWOT

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Strengths. UPS brings to the market considerable strengths with the greatest being

reputation and brand loyalty.

Financial: UPS is the leader in global package delivery with revenue increases in

all business sectors, thus a strong financial performance. The organization

possesses liquidity; free cash flow was generated and stock was repurchased

during 2010 with dividend increase per share; therefore cash is being returned to

shareholders (SEC, 2011).

Technology: New products and solutions in all business sectors. Alternative

energy transportation replacing traditional fuel vehicles. Paperless invoices, the

ability to use the same processing and tracking system for small packages and

freight transport; including Import Control, Internet Shipping, CampusShip,

WorldShip Quantum View Manage, and Tracking services are provided for

consumers as well as mobile applications (Technology Takes Off at UPS to

Simplify International Shipping, 2010).

HR: Human Resources (HR) Department rated at number four by Human

Resources Executive Magazine in 2010; Apple was rated number one, Goldman

Sachs number two, Nike number three, and UPS at number four. The rating is

based on the organizational reputation, how they got to where they are, the focus

on employees, and how management promotes employees to thrive in the

organization (UPS Human Resources Function Cited Among Best in Country,

2010). There is strong work ethics and commitment towards all stakeholders

possessed by each employee, an asset for the organization (Personal conversation

with J. Barnes on February 24, 2011, an employee of UPS since 1973).

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Weakness. Research has revealed weaknesses within the UPS business sectors with

the main one being global competition.

Product: The volume of correspondence decreased due to weakness experienced

in the financial and other services sectors (SEC, 2011).

Opportunity. There are numerous domestic and global opportunities for UPS.

Environmental opportunities are numerous as UPS is already an environmental

steward. Technology combined with R&D will allow more green products

especially in the area of logistics, use of alternative fuels and energy, and working

with environmental groups and researchers for the reduction of resource

consumption and efficiency increases.

Healthcare logistic infrastructure support involving not only transportation and

warehousing, but R&D for prescription and medical device delivery to hospitals,

physicians, and patients; invoicing systems; and healthcare facilities around the

globe (UPS Expands Healthcare network with New Facilities in Asia, Europe,

U.S. and Canada, 2011).

Expansion in products and services or reorganizing in all sectors will allow

growth opportunities in the future globally (UPS Expands Throughout Asia Its

Expedited Ocean Freight Service, 2011).

Threats include economic, political, social, technological, and competitive factors.

Economic factors have a direct impact as has been seen with the weak and global

downturned economies; therefore services must be reviewed to accommodate the

consumer in order to obtain and/or retain their business. The U.S. has shifted to a

service economy, while the Asian nations are manufacturing. Credit availability,

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disposable income, pending, rates of interest, inflation, governmental deficits,

gross domestic product trends, consumption, unemployment, fluctuations in

foreign currency, stock market, product and service demand shifts, imports and

exports, price indexes, monetary policies, fiscal policies, tax rates, and the

European Economic Community as well as the economic policies of other nations

(SEC, 2011 & Hunger & Wheelen, 2007),

Political factors are many with an organization like UPS who has global

operations. Political, governmental, and legal aspects must be reviewed and

studied; whether federal, state, local, and foreign government, there are

regulators, deregulators, subsidizers, employers, and consumers of UPS. The

potential threats are government tax laws, trade quota and restraints, regulatory

framework, industry subsidies, investment incentives, regulated pricing, trade

agreements, economic treaties, and bureaucratic processes. War and political

unrest is abounding globally, therefore some operations may have to be

discontinued or suspended due to unrest (Yahoo, 2011 & Hunger & Wheelen,

2007).

Societal factors must be considered as UPS delivers to every address in the U.S.

and Europe; therefore social, cultural, demographic, and environmental trends

shape the way for working, living, producing, and consuming of products and

services. UPS needs to continue and expand into more programs involving

corporate responsibility and make society aware of all of their business sectors.

Environmental programs need to be continued with public education, as well as

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forming alliances with those in the alternative energy and fuels R&D (SEC, 2011

& Hunger & Wheelen, 2007).

Technological factors have played a role in UPS’s success, but more R&D needs

to occur. Technology must be on the leading edge for UPS to stay in pace with

the trends and innovations; as well as assist those emerging countries to stay

competitive in the new global environment (SEC, 2011 & Hunger & Wheelen,

2007).

Competitive Factors include competitive intelligence as UPS must be in-tune with

competitors in the highly competitive global air and freight transportation

industry. When obtaining intelligence about their competitors, like FedEx, they

have the ability to increase profits, lower costs, and have more and better

knowledge for decision making (Yahoo, 2011 & Hunger & Wheelen, 2007).

Competitive

Competitive advantage is what an organization can offer which is of greater value to the

consumer in relation to what competitor(s) cannot. Greater value can come to the consumer

through lower prices or greater benefits and services which give way to increased prices. On the

other hand, competitive strategies are strategies designed to achieve the competitive advantage.

As Michael Porter suggested, differentiation and cost leadership look for the competitive

advantage in an expansive array of markets or industry sectors. On the other hand,

differentiation focuses and cost focus strategies are chosen in a restricted market or industry

(Hunger & Wheeler, 2007). UPS is utilizing a competitive strategy to maintain their competitive

advantage, augmenting their share of the market, and to boost earnings.


UPS’s competitive strategy is in their network. Their highly developed technological

system is integrated within all the business sectors. Their portfolio contains leading edge

products and services. Express Delivery Services, Retail, Office Products Retail & Distribution,

Transportation Services, Freight Forwarding Services, and Logistics Services are industries in

which they compete. UPS has a presence in over 200 countries and territories (SEC, 2011).

UPS is positioned for expansion and growth as they have been in the international sector since

1975 with a balanced global presence which has growth opportunities in the future and the

capabilities of logistics providing the competitive advantage.

UPS is uniquely positioned for supply chain opportunities. Assets are positioned globally

in key locations for performance excellence. Consumers have access to the integrated

technology, as well. UPS has the knowledge and proficiency in all their business sectors, as it

has been shown and should continue in the future (SEC, 2011).

UPS is the key player in the package delivery industry, as they have shown during this

downturned global environment and in front of their competitors FedEx and Deutsche PostAG

(Yahoo, 2011). The downturned global environment has seen the agile and innovative UPS

maintain and gain in their profits across the board. 2010 revealed liquidity and stock repurchases

and an increase in dividends for stockholders (SEC, 2011).

Value chain

UPS has formed alliances and invested in numerous industries and markets across the

globe that are important to the Supply Chain & Freight sector. This business sector is the

provider of services to approximately 175 countries and territories globally; created the global

supply chain, implementation and management, forwarding and distributing freight, customs


brokerage, consulting and mail services are included as well as UPS Freight, The UPS Store, and

UPS Capital. The companies which UPS has investments are as follows.

Air2web is the provider of global connectivity that is utilized for their mobile

applications.

Aveso, Inc. is the provider of the global smart card and technology to print

package labels.

Cold Pack System is the provider of thermal packaging materials for products

which are temperature sensitive for transport around the globe. This service is

utilized by UPS and their pharmaceutical consumers.

Demand Point is the provider of value chain streamlining through fulfillment

tactics.

Deposco is the provider of software that is utilized for the management of the

supply chain.

Docufree is the provider of Solutions-as-a-Service for UPS electronic processes.

Impinj, Inc is the provider of RFID technology foresight for the knowledge and

use of chips used in global supply chains by UPS.

nuBridges, Inc. is the provider of eBusiness solutions for UPS.

SensorLogic Inc. is the provider of global software for monitoring from a

different location, as well as control and optimization.

Truviso, Inc. is the provider of software that allows streaming continually,

transparency, real-time analysis and visibility.


United Villages is the provider of communications, ecommerce, and other value

added information services in rural areas which are many times underserved;

utilized by UPS and some of their consumers

(Portfolio Companies, 2010).

First International Bank acquirement by UPS in 2001, this financial organization

specializes in government backed industrial loans. This is in UPS Capital for

business-to-business e-markets. This acquirement increases the product and

service lines which allows greater entry in the budding and potential profitable e-

market (UPS Timeline, n.d.).

Recommendation

Due to the slow global economy recovery, UPS should expect moderate growth. The

unrest in some African Nations, war in the Middle Ease, and global terrorism events impact the

cost of energy and many unknowns. Service to areas impacted by war, terrorism, and unrest must

be flexible in operations and be prepared to cease if warranted. International growth needs to be

the focus. The domestic market has changed due to the economic down turn, but partnerships

and alliances need to be formed for e-business shipping globally. Therefore, small package and

correspondence shipping volume and revenue can be increased through technology. A press

campaign needs to occur to make the public aware of the technology UPS possess uses and

provides, as well as the strides that have and are being taken in regards to being an

environmental steward. Healthcare logistics needs to be marketed and expanded into the

budding markets around the globe. R&D for products and services needs to continue with the

expansion of new facilities and services in the underserved areas around the globe. R&D needs


to continue concerning the mobile applications and additional alliances are needed with mobile

providers to attain and maintain the competitive advantage.

Conclusion

United Parcel Service, Inc. is the market leader in the package delivery industry and is

distinguished from others with its cash flow, shareholder returns, and strong financial

performance. As Arielle Kass stated in The Atlanta Journal-Constitution on September 13, 2010,

“… UPS launched a new slogan and ad campaign … “We ♥ logistics” – leaving “What can

brown do for you?” at the curb” (Kass, 2010). UPS is changing their global strategy in regards

to marketing as they have moved into logistics, even though package delivery is still the main

business sector. Logistic systems are the future in this global environment, along with going

green and vehicles that utilize alternative flue and technology. These changes open the door for

UPS to align themselves with manufacturers, governmental agencies, and other organizations for

R&D of new, cheaper, and cleaner fuels than the traditional fuel products.

References


Hunger, D. & Wheelen, T. L. (2007). Essentials of strategic management (4th ed.). Upper

Saddle River, NJ: Pearson Prentice Hall.

Kass, A. (2010). UPS packs up ‘brown’ slogan, as packages take back seat. Retrieved from

http://www.ajc.com.business.ups-packs-up-brown-612964.html.

Portfolio Companies. (2010). Retrieved from http://www.ups.com/sef/portfolio.html.

United Parcel Service, Inc. (2011). Business summary. Retrieved from

http://finance.yahoo.com/q/pr?s=UPS.

UPS. (2011). About UPS. Retrieved from http://www.pressroom.ups.com/About+UPS.

UPS Expands Healthcare Network with New Facilities in Asia, Europe, U.S. and Canada.

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etwork+with+New+Facilities+in+Asia%2C+Europe%2+U.S.+and+Canada.

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Re+Function+Cited+Among+Best+In+Country.

UPS /Timeline. (n.d.). Retrieved from

http://www.pressroom.ups.com/Fact+Sheets/ci.UPS+Timeline.pring.

SEC. (2011). EX-99.1 2 g25957exv99w1.htm EX-99.1. Retrieved from

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The Irish Logistics & Transport Awards 2010. (2010). Retrieved from

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UPS, Inc. Strategy Formulation

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