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Running Head: UPS CASE ANALYSIS

The University of the West Indies, Mona


Mona School of Business and Management
Master in Business Management- Cohort 6

This assignment is presented in partial fulfillment of the requirements needed for Business
Policy & Strategy - SBCO6200

Presented by:
620086240
607005445
620018232
620053114
620031463
Facilitator: Dr. Tolu Bewaji
Date Presented:
22nd June 2016

UPS CASE ANALYSIS


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Contents
Executive Summary .................................................................................................................................. 3
Mission and Vision ................................................................................................................................... 4
United Parcel Service (UPS) Existing Vision Statement ...................................................................... 4
United Parcel Service (UPS) Existing Mission Statement .................................................................... 4
United Parcel Service (UPS) Objectives ............................................................................................... 4
United Parcel Service (UPS) Strategies ................................................................................................ 5
Improved Vision Statement for UPS .................................................................................................... 6
Improved Mission Statements for UPS................................................................................................. 6
Internal Assessment .................................................................................................................................. 8
UPSs Present Organizational Chart ..................................................................................................... 8
UPSs Improved Organizational Chart ................................................................................................. 8
Marketing Strategy of UPS versus Competitors ................................................................................... 9
Map Locating UPS Operations and Market Positon ........................................................................... 10
Value Chain Analysis Chart................................................................................................................ 14
Value Chain Analysis of United Parcel Service ................................................................................. 14
UPSs Website and Facebook Page .................................................................................................... 16
UPSs Internal Strengths and Weaknesses.......................................................................................... 16
UPS Internal Factor Evaluation (IFE) Matrix ..................................................................................... 19
External Assessment ............................................................................................................................... 24
Major Competitors .............................................................................................................................. 24
Competitive Profile Matrix (CPM) ..................................................................................................... 27
Key Industry Trends ........................................................................................................................... 28
Key External Trends ........................................................................................................................... 28
UPSs External Opportunities and Threats ......................................................................................... 30
Opportunities....................................................................................................................................... 31
UPS External Factor Evaluation (EFE) Matrix................................................................................... 34
Strategy Formulation .............................................................................................................................. 40
Strategic Position and action Evaluation (SPACE) Matrix................................................................. 40
Boston Consulting Group (BCG) Matrix ............................................................................................ 42
Internal to External Matrix (IE) for United Parcel Service (UPS) ...................................................... 44
Strategy Implementation ......................................................................................................................... 45
Financial Ratios .................................................................................................................................. 45

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Recommended Specific Annual Objectives and Policies ................................................................... 53
Recommendation of Specific Strategies and Long-term Objectives .................................................. 61
Estimated Cost of Implementing the Strategies .................................................................................. 66
References ............................................................................................................................................... 72
Appendices.............................................................................................................................................. 74

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Executive Summary
This report was created to analyze and summarize the Mission and Vision, Internal
Environment, External Environment, Strategy Formulation, Strategy Implementation, and
Strategy Evaluation of The United Parcel Service (UPS). UPSs threats, weaknesses,
opportunities, and strengths were measured against acknowledged business processes and
strategies. UPS started business in 1907 as a messenger company in the United States. It grew
into a multi-billion-dollar, global corporation. Their goal is to enable global commerce. They
have grown into their role by specializing in transportation to support logistics services. One of
the most recognized and trusted brands worldwide; UPS is the worlds leader in parcel
delivery (About UPS, 2012).

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Mission and Vision


United Parcel Service (UPS) Existing Vision Statement
Our goal is to synchronize the world of commerce by developing business solutions that
create value and competitive advantages for customers.

United Parcel Service (UPS) Existing Mission Statement

Mission: We seek to Achieve


Grow our global business by serving the logistics needs of customers, offering
excellence and value in all that we do.
Maintain a financially strong company with broad employee ownership that provides a
long term competitive return to our shareowners.
Inspire our people and business partners to do their best, offering opportunities for
personal development and success.
Lead by example as a responsible, caring and sustainable company making a difference
in the communities we serve.

United Parcel Service (UPS) Objectives


As the worlds largest package delivery company and a leading global provider of specialized
transportation and logistics services, UPS continues to develop the frontiers of logistics,
supply chain management and e-Commerce combining the flows of goods, information and
funds.

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United Parcel Service (UPS) Strategies


Customers leverage our broad array of logistics capabilities; global presence in North
America, Europe, Asia and Latin America; reliability; industry-leading technologies; and
solutions expertise for competitive advantage in markets where they choose to compete. We
prudently invest to expand our integrated global network and our service portfolio.
Technology investments create user-friendly shipping, e-commerce, logistics management and
visibility tools for our customers, while supporting UPSs ongoing efforts to increase
operational efficiencies.
The UPS vision is guided by three strategies:
1. To create value for customers using our superior portfolio of logistics capabilities
Demonstrate how the power of logistics can create a competitive advantage for
customers.
Offer products and services that expand our customers access to global markets.
Configure the board portfolio of solutions for targeted industries.
Offer industry leading technology that simplifies and improves our customers business
processes.

2. Continually transform to strengthen leadership position


To deliver an exceptional customer experience.
Apply marketing and sales excellence to drive profitable growth.
Enhance performance through quality, efficiency and technology.

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3. Invest to accelerate growth in key markets and new opportunities.


Accelerate growth by leveraging our global network and scale.
Build our infrastructure and presence in key emerging markets.
Expand our offerings of integrated logistics solutions

Improved Vision Statement for UPS


We will globalize the world of logics and providing Customers Services by creating values
and transform them through investments

Improved Mission Statements for UPS


A mission statement proposed to UPS is:
What we seek to achieve:

We offering precious and excellent customer services, logistics, distribution and


commerce need worldwide in all manners.
We are ethical, well regarded and responsible employer by providing our people
rewarding, appreciation and cooperative environment with the opportunity for
advancement
We serve as environmental friendly by caring our society and responsible corporate
citizen
We make our business globalize by servicing prior logistics to the customers and
offering them a valuable services.

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Maintain as a financially strong company through our stakeholders that serves a


long term commitment.

This improved vision statement focused more on UPS goal in dominating the logistics
industry in becoming the market leader and cater their services more to individuals
customers while the original vision statement were more focused on catering to other
businesses and firms to gain a competitive advantage.

The improved mission statement declares the companys overall service and commitment
to customers like the original mission statement but also stating that they are highly ethical
which indicates to customers that UPS is a trustworthy and safe company to conduct
business with them. Also this improved mission also mentions their responsibilities to
stakeholders and to the environment.

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Internal Assessment
UPSs Present Organizational Chart
Among UPSs top eight corporate executives, there are two women and one African
American. Figure 3 reveals UPSs current organizational chart. Note the company uses a
divisional by geographic region structure.

Figure 3: UPSs Organizational Structure

UPSs Improved Organizational Chart


The improved chart shows the three hierarchical levels; directors, management and senior
operations management. This structure clearly highlights the ranking and categories of UPS
management operations. However, the previous structure omitted senior vice president, global
transportation and senior vice-president, sales, marketing and strategy officer. There is a

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financial director and a senior vice-president chief financial officer which was also omitted
from the original organization chart.

UPS Chairman and


Chief Executive
Officer

Senior Vicepresident,
Chief
Information
Officer

Financial
Director

Senior
Vicepresident
and Chief
Financial
Officer

Senior Vicepresident,
Global
Transportation

President
UPS
International

Chief
Operations
Officer

Senior Vicepresident,
Legal
Compliance
Officer

Senior Vicepresident,
Human
Resource
and Labour
Relations

Senior Vicepresident,
Communication
s and Brand
Management

President
UPS
Operations

Marketing Strategy of UPS versus Competitors


UPS
To promote the company and its product, UPS uses advertisements, print advertisements and
the concept of e-marketing. These promotion and communication strategy tend to meet the

Senior Vicepresident,
Sales,
Marketing and
Strategy
Officer

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consumers from different places everywhere, especially those target markets or the consumers
in the working place. Moreover, since the trend in the market place today is the usage of emarketing, the company provided a website that any client can access. The use of the Internet
is changing high-tech marketing overnight while different industries have been trying to use it
as part of their marketing strategy.

Fed Ex
To be the fastest service provider company in the courier delivery companies.
To maintain the logistics and operations of the company smooth and workable to earn
big profits.
To use technological improvements in enhancing the system for clients to track their
orders at any time and place.
Making the services smooth and comfortable for clients that they pay higher prices
happily for such fine courier services.
To differentiate the standards of quality from their competitor companies to raise the
level of services for the comfort of its clients.
By providing superior services, a strong customer base should be maintained for the
company which keeps on increasing day by day.

Map Locating UPS Operations and Market Positon

United Parcel Service, branded as UPS, is one of the largest shipment and logistics companies
in the world, offering a broad range of solutions including transporting packages and freight;

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facilitating international trade, and deploying advanced technology. Headquartered in Atlanta,


Georgia, UPS serves more than 220 countries and territories worldwide. With over 390,000
employees worldwide, UPS delivers 16.9 million packages and documents to 9.4 million
customers daily.

UPS Supply Chain Solutions has assembled comprehensive portfolio of transportation


services, which, as stand-alone or bundled together, create innovative supply chain solutions
for multiple industries.
With UPS Supply Chain Solutions, you get a single-source solution to more efficiently
manage transportation for your business. We're uniquely positioned to leverage our
infrastructure, systems and global network to synchronize your supply chain from end to end regionally, nationally and globally.

Furthermore, UPS is investing massively in transport technology research. Innovations such as


alternative fuels and electric vehicles are among being tested, reduction in fuel consumption
being the main concern. Engineers and geographers study optimal roads and driving speeds to
enhance efficiency and reduce costs. In that regard, UPS is also working on computer software
to simplify shipping red tape, optimize routing strategies and facilitate package tracking. The
system also enables customers to locate and track their parcel directly from the Internet. UPS
is a textbook example of intensive research in transport geography. Optimal routing systems
are essential to assure efficient delivery in only 24 hours throughout the world. Rigorous
planning can also save considerable amounts in transport costs such as fuel, wages, vehicle

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maintenance, etc. Strategies such as the consolidation principle and the hub network strategy
are very important and useful in transport geography analysis.

Consolidation: The first step obviously involves the collection of parcels by trucks assigned to
specific routes. To optimize the driver's effectiveness, 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 an hand-held computer device (DIAD) that enables to capture information about
each packages and delivery. This is essential to track a parcel or be alerted in any road change
or unplanned situation. The parcels are then assembled at the closest distribution center.
Distribution: The distribution function works on a hub to hub basis, depending on the
distance involved, the mode used between hubs will either be trucking or air. Commonly,
trucks are used for distances less than 400 miles (600 km). The main air hub is Louisville,
Kentucky, which handles over 100 flights a day. In 2002, a distribution center of 5.2 million
square foot, called UPS Worldport, opened at the Louisville International Airport. This facility
handles about 1.6 million packages each day. The main land hub is the Chicago Area
Consolidation Hub, which is the largest distribution center in the United States.
Fragmentation: This step is the inverse of consolidation as parcels have to be delivered to
each individual destination. Commonly, 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. In instances where there is not enough density to
justify a commitment of distribution assets, UPS will deliver to the local post office, which
will cover the last mile.

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Map locating UPS Operations (Service Grounds): Geographical Distribution UPS reaches
across the globe. 79% of their revenues come from the Americas, with 9% and 10% from Asia
and Europe, respectively.

Figure 7: Map Locating UPS Operations

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Value Chain Analysis Chart

Figure 8: UPS Value Chain Chart

Value Chain Analysis of United Parcel Service

Support Activities:
Administration and management: Package Level Details (PLD), an automated operational
system; able to do data mining in the warehouse which lead to the creation of accurate cost
calculations for the accounting function, allow the accountants to use activity-based costing
(ABC) to identify the profitability for segments of thousands of delivery routes.

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Human Resources: The PLD system also helps the UPS human resource department to
calculate it cost of labour for every shipping segment.
Technology: UPS developed a GPS-based aircraft navigation system to guide planes into an
airport. This system saves UPS several minutes and 50-100 gallons of fuel per flight.

Procurement: UPS purchased airplanes to deliver their shipment.

Primary Activities:
Inbound Logistics: The UPSs order entry system was able to wring out inefficiencies by
having shipping customers enter package information directly into the system by themselves in
advance of pick-ups.

Operations: Geographical information system (GIS), provides UPS with the IT competency
of optimizing workflow by automatically assigns resources to pick up, sort, and deliver the
packages once the customers enter PLD data into UPSs order entry system.

Outbound Logistics: UPSs systems able to process the customer-entered information by the
supplier and scheduled direct delivery to the producer. Delivery Information Acquisition
Device (DIAD), able to generates an electronic manifest to help the UPS truck driver to
deliver the shipment by using the most efficient route.

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Marketing and Sales: Enterprise Resource Planning (ERP) system can be extended to link
with
business partners system to create the business opportunity of shorter time-to market.

Customer Services: USPS, UPS transaction processing systems provides a seamless package
tracking capability to its customers.

UPSs Website and Facebook Page


Overall consumer satisfaction with UPS website and facebook page is high. However online
shoppers are satisfied with the ability to customise their experience post purchase.
Specifically, their ability to choose a delivery day, re-route a package after it has been shipped,
and the ability to specify a time of day for delivery. Also they are satisfied with their ability to
contact a live customer service representative and the ability to purchase through a smartphone
or tablet application. UPS also uses social media to access consumers. Facebook ranks as the
most popular by a considerable margin, followed by Twitter, Google+, and LinkedIn.
The internal factors may be viewed as strengths or weaknesses depending upon their impact on
the organizations objectives.

UPSs Internal Strengths and Weaknesses


Strengths:
1. High entry barriers

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2. UPS competitive advantage lies in its use of integrated assets to transport U.S.
urgent and ground shipments through the same network.
3. Clients appreciate the convenience of using the same driver to handle both express
and ground packages. By doing this, UPS yield on express packages is 20% more
than Fed Ex.
4. Strong market position: UPS is the largest package delivery company in the world.
5. Broad portfolio of Service:
6. Loyal Customers
7. Strong Revenue Growth
8. Effective Communication
9. Empowerment of Employees
10. Strong distribution Network
11. Strong Financial Performance
12. Premium Service (next-day delivery)
13. Large Customer Base
14. Strong Market Position
15. Broad portfolio of Service
16. Strong Financial Performance
17. Global Brand
18. Customer Relationship
19. Advanced Supply Chain Activities
20. Environment Friendly

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Weaknesses:
1. Company is still highly reliant on the U.S. market.
2. High energy costs are reducing profits.
3. No Innovation
4. Lack of Diverse Pool
5. Lack of Technology
6. Low Research and Development
7. Heavy Union Presence
8. Perception of Ground Delivery instead of overnight
9. The market share growth is limited as UPS serves a competitive segment.
10. Geographic Focus
11. High Debt
12. High Staff Turnover
13. Increase Prices
14. Business to Business
15. Stock-based Compensation
16. Rise in Fleet Charges
17. Increase in Operating Expenses
18. Reduction in work hours: an outcome of lower mail volumes which reduces
workload
19. Unfunded employee post benefit
20. Small Business Units

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UPS Internal Factor Evaluation (IFE) Matrix

Key External Factors

Weight Rating Weighted


(1-4)

Comment

Score

Strengths
Strong Market Position

United Parcel Service, Inc.


holds a compellingly strong
market position in the global
package delivery industry and
is a leader in the less- thantruckload trucking industry in
the United States. The
company's operations reflect its
market position. The company
delivers packages for around
1.8 million customers to 6.1
million consignees in over 200
countries and territories each
business
0.025

0.1

Broad Portfolio of Service

day.
The company is well
diversified in terms of the end
markets that it serves. It
provides a diversified
set of offerings through its
three business segments. For

0.01 25

0.0375

instance, the US domestic

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package segment
consists of air and ground
delivery of small packages up
to 150 pounds in weight and
letters to and
from all 50 states in the US. It
also provides guaranteed, timedefinite delivery of certain
heavy-weight packages. UPS
delivers to more businesses and
zip codes in the US, and
worldwide from the US,
than its competitors.
Strong Financial

The company has a long track

Performance

record of steady growth and


strong financial performance.
The company have maintained
the stable rating outlook with
the belief that the company is
well-positioned to demonstrate
improved performance, and
financial metrics consistent
with its assigned rating as the
economic recovery gains
0.05

0.15

Global Brand

steam.
UPS have built a strong
international presence through
significant investments over
several decades. The
international package delivery
market continues to grow at a

0.075

0.225

faster rate than that of the U.S.

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Premium Service (next-day

UPS tradition of reliable

delivery)

package delivery service, our


experienced and dedicated
employees and our unmatched
integrated air and ground
network provide us with the
advantages of reputation,
service quality and economies
of scale that differentiate us
0.0 5

0.2

Large Customer Base

from our competitors


UPS's customer base has grown
from 500,000 in 1980 to over
1.46 million daily pickup

0.0 25

0.1

customers in 1996 (Hair, 2014)


UPS Supply Chain Solutions is

Advance Supply Chain

uniquely positioned to develop

Activities

end-to-end supply chain


management. Their
comprehensive service
portfolio and advanced IT
systems combined with their
network of worldwide
distribution facilities make
them the global provider to
turn to when you want a single,
trusted source for your supply
0.05

0.2

Robust Infrastructure

chain needs.
UPS has a strong transportation
infrastructure. It operates a
ground fleet of approximately
101,900 vehicles, which

0.075

0.225

reaches all business and

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residential zip codes in the


contiguous US. It also operates
an air fleet of 510 aircraft, and
is one of the largest airlines in
the world.
Environment Friendly

Reduce paper use and increase


billing efficiency with
electronic, or paperless, billing
0.025

0.075

from UPS.

0.145

0.29

UPS has operations in Africa,

Weaknesses
Geographic Focus

Asia, America, Europe, and


Middle East. Overdependence
on one geographic region
makes it susceptible to changes
associated with the economic
and political situation of the
country. The company's high
reliance on the US market
exposes it to the risk of
downturns in the country's
macroeconomic conditions and
increases its business risk.
Competitive Segment

0.15

0.3

UPS has focused on the US


market even if it has operations
in other countries situated in
Asia, Africa, America, Europe,
and the Middle East. The
company's competitors such as
TNT, have diversified their
operations in various Asian and
European countries

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Reliance on U.S Market

0.075

0.075

Company is still highly reliant


on the U.S. market.

High Staff Turnover

0.025

0.025

Over the last ten years we have


seen a dramatic increase in the
utilization of part-time workers
by the United Parcel Service
(UPS). This increase has been
coupled with a stunningly high
turnover rate of 150 percent
among these workers
(Bronfenbrenner,2000)

Increase Prices

0.05

0.05

There has been an increase in


service fee due to a rise in oil
and operational expenses.

Business to Business

0.055

0.11

UPS specializes in the delivery


of parcels to consumers on
behalf of online businesses.

Total Weighted Score

2.163

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External Assessment
Major Competitors
Companies in this industry provide express delivery and pickup of parcels. Major companies
include US-based United Parcel Service (UPS) and Federal Express (FedEx), as well as
Aramex (United Arab Emirates), DHL (Germany), and Yamato (Japan), with two key players,
FedEx (FDX) and United Parcel Services (UPS); as shown in figure 1 and 2. UPS is the U.S.
leader in their sub-industry. Their competition consists of mainly FedEx and a few smaller
companies.

Figure 1: Market Share of Major Courier and Delivery Services 2015

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Figure 2: Market Share of Courier Service Providers (2015)


The profitability of individual companies depends on price, reliability, quality, and services.
Large companies compete by offering a wide range of services. Small companies compete
through specialized customer service. The industry is divided into two segments: large
networked couriers capable of nationwide and international delivery, and smaller local
services that transport packages within a metropolitan area. Table 1 below highlights UPS and
its competitors quarterly profitability for 2015.

Table 1: UPS vs Competitor Profitability for 2015

United Parcel Service (UPS)


United Parcel Service is one of the leading local and global package delivery companies, with
its headquarters in Sandy Springs, Georgia. Founded in 1907, the company prides itself on
delivering over 15 million packages a day to 6.1 million customers in more than 220 countries
around the world. Its courier express service is one of the best in the world and has the lions

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share of the US domestic market as a whole. The company has about 4,756 stores, 1,000
customer service centers, 13,000 authorized outlets, and 40,000 drop boxes.

FedEx
Headquartered in Memphis, Tennessee, FedEx is a global courier delivery services company
that was founded in 1971. It is also one of the top courier services in the world. The company
has a market cap of about $49.9 billion and offers ground and air delivery services, overnight
deliveries, time-guaranteed international delivery, and freight services, to name a few. The
company holds about 49% of the total express shipping market in the US. The company has
about 1,900 office locations in the US.

DHL
Headquartered in Germany and privately held, DHL is a gigantic package delivery company
that constitutes the express delivery and logistics business segments of its parent, Deutsche
Post. DHL is a leader in the worldwide market for express delivery services, operating through
four divisions: Express, Global Forwarding and Freight Forwarding, Mail, and Supply Chain.
(Mail service in Germany is handled by the Deutsche Post brand; DHL handles all of the
Global Mail business). DHLs Express courier service network spans more than 220 countries
and territories using a fleet of 32,000 vehicles and about 250 aircraft.

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Competitive Profile Matrix (CPM)


The Competitive Profile Matrix (CPM) illustrated above indicates that the United Parcel
Service (UPS) is poised to succeed and dominate the market over their closest rivals
Federal Express (FedEx) and the United States Postal Service (USPS).

Critical Success Factors


Advertising
Global Presence
Organization Structure
Customer Service
Global Expansion
Financial Position
Employee Dedication
Management Experience
Customer Loyalty
Market Share
Product Quality
E Commerce
Price Competitiveness

Weight
0.05
0.05
0.08
0.10
0.05
0.10
0.07
0.10
0.10
0.10
0.05
0.07
0.08

United Parcel
Service
Rating Score
4
3
4
4
4
4
4
4
4
4
3
2
4

0.20
0.15
0.32
0.40
0.20
0.40
0.28
0.40
0.40
0.40
0.15
0.14
0.32

Federal
Express
Rating
Score
3
3
1
3
.30
3
3
3
3
3
2
3
3
2

United States
Postal Service
Rating Score
0.15
0.15
0.08
0
0.15
0.30
0.21
0.30
0.30
0.30
0.15
0.21
0.16

2
0.10
1
0.05
1
0.08
1
0.10
3
0.15
0
0.00
3
0.21
3
0.30
2
0.20
4
0.40
2
0.10
2
0.14
2
0.16

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Key Industry Trends


The Couriers and Local Delivery Services industry is an integral part of the US economy,
providing transportation for goods, materials and documents for individuals, businesses,
institutions and government agencies. Couriers pick up documents and packages needing to be
sent or received quickly and deliver them to their final destinations, usually within a local area.

In 1997, the four carriers that account for well over 90% of U.S. parcel activity Airborne,
FedEx, UPS, and the U. S. Postal Service-- had $37.9 billion in transportation revenue. This
exceeded the domestic transportation revenue of all major freight modes except trucking
(Morlok, etal, 2000). In the BTS1977 Commodity Flow Survey, only 3.2% of the value of
goods shipped went via parcel carriers. But by the latest survey, in 1997, that percentage had
grown to 12.3%. There are fundamentally two reasons why parcel service has become so
important in recent years. One consists of changes in the way goods and services are produced
and distributed in our economyglobalization, customized mass production, lean inventory
management, rapid customer response, and growth in e-commerce, among others. The other is
parcel service itself, which is at the vanguard of transportation service modernization with
such features as differentiated time-definite service options, intermodal service, in-transit
visibility, and data integration with the management systems of customers. Thus parcel service
is a major element of the transportation infrastructure of the nation. It is essential for modern
commerce. Current trends suggest that parcel service will assume an even more significant
role in the future.

Key External Trends


Economic

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Our UPS operations in international markets are affected by currency exchange and inflation
risks. Gasoline prices, along with rising energy prices are the major concern. Jet fuel prices are
at $2.80/gallon. However, many people would rather have items shipped rather than spend
money on gas to go and buy the item. The industrial industry tends to be sensitive to economic
cycles.

Legal
International express services can be delayed by government policies and restrictions that can
include anticompetitive practices of government-owned or authorized monopolies, licensing
requirements, customs procedures, restrictions on access to aviation markets, restrictions on
access to ground transportation systems, and restrictions on foreign investment.
Market Demographics: The target market is everyone in the world who needs to ship an item.
Christmas time is a particularly busy time for shipping items across the world, whereas people
need a company like UPS to do the delivering for them.

Social
UPS supports communities all over the world by supplying jobs to well over 400,000 people
with 68,000 of those jobs being outside the United States. UPS employees and retirees donated
$53.2 million US to the United Way in 2009 and also donated 1.2 million hours of their and
their familys personal time to volunteer work in their communities (UPS. 2009)

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Attracting and retaining customers, increasing market share in diverse communities, building
strong one-on-one relationships with key stakeholders in diverse communities, building and
maintaining a strong supplier diversity effort and allocating resources to diversity and
inclusion.
Culture
UPS Employee Diversity & Inclusion Strategy represents their commitment to creating an
environment where all employees feel valued, respected and fully engaged to contribute to
their future success. In support of that strategy, UPSs definition of diversity extends beyond
race, age and gender to also include differences in ethnicity, sexual orientation, gender
identity, education, religion, physical ability, values, backgrounds and experiences.
Additionally, the companys brown-clothed drivers and employees and brown trucks
symbolize the firms commitment to a distinctive culture, anchored by employee ownership of
a large part of the firm. UPS is highly unionized.

Technology
UPS innovative technology business services help streamline shipping, visibility, and billing
processes to create value that goes beyond on-time delivery. Using shipping software,
professional services customers have been able to improve shipping cost recovery as well as
shipment preparation time.

UPSs External Opportunities and Threats


The key external opportunities and threats that are important to achieving the objectives of
UPS are identified below. United Parcel Service (UPS) is the world's largest package delivery

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company. Yet it's not invincible. The question before us today is: Can UPS overcome its
weaknesses and emerge as the investor's company of choice? As such its internal strengths and
weaknesses are identified below.
Opportunities
1. The ratification of a new five-year contract with its Teamsters employees,
including a plan to withdraw from a large underfunded multiemployer pension, and
a change in policy toward debt.
2. Looking East: Emerging Asian nations, such as India and China, still have a
considerably low penetration of package delivery services, making them the perfect
regions for potential acquisitions by the company.
3. Online Shopping: The recent boom in online shopping also means that an
increasing number of people will require shipping services, which should translate
into a potent source of revenue for companies like UPS. Online shopping giants
Amazon and eBay regularly use its services to reach out to their customers.
4. Geographical Expansion
5. Online Distribution
6. Change in Consumer Behaviour
7. Alternative Facility
8. Global Expansion
9. Emerging Market Growth
10. Logistic Outsourcing
11. Retail E-commerce Growth
12. Technological Advancements
13. Integrated Global Network

UPS CASE ANALYSIS


32

14. Government Control offers the ability to get extra funding as needed
15. Aging Population
16. The postal service updates its 5-year strategic plan annually to accommodate
ongoing business environment changes.
17. On average, the competitors are more expansive in services they offer compared to
UPS.
18. Increasing need for segment expertise in the integrated carrier space
19. Deregulation in the trucking industry
20. Emergence of International Middle Class

Threats
1. Globalization: Exchange and inflation risks
2. Competition for market share is highly intensive
3. Technology Increase
4. Internet Use Increase: Less demand for document delivery
5. Fluctuating energy prices: changing energy prices will greatly affect UPSs service and
bottom line
6. Growth of Fed Ex, DHL, TNT or other major competitors.

7. Spiralling Fuel Costs: UPS has to contend with rising fuel costs that hurt margins and
pinch profitability. In 2011 the company's revenue grew by 7%, while fuel expenses
surged by a staggering 36%.

UPS CASE ANALYSIS


33

8. China Challenge: Although China is a highly lucrative area of expansion for most
organizations, including UPS, the recent slowdown in China's economy continues to be
a source of concern. UPS' actual performance may not live up to its expectations in that
region, but this story has yet to play out.
9. Compliance with Government
10. Compliance with international market laws and regulations
11. Strikes and Work Stoppage
12. Intense Competition
13. Change in Consumer Behaviour
14. Premium Charges for Delivering Goods
15. High Cost of Trade
16. Distribution Network
17. Shifting to Subsidies (from air to sea)
18. Privacy Breach or IT system
19. Weak economy has impacted UPS and consumer due to downsizing and cutbacks
20. Increase in Contract Labour Rates

UPS CASE ANALYSIS


34

UPS External Factor Evaluation (EFE) Matrix

Key External Factors

Weight Rating Weighted


(1-4)

Comment

Score

Opportunities
UPS Worldwide Expedited
offers to our customers a
more cost-effective, prompt
service with the same
benefits that they get, using
UPS Worldwide. According
to UPS, unstable economic
situation of recent years
makes it even more obvious
the reasons by which
companies should look for
ways to ensure the stability
and growth opportunities in
Geographic Expansion

0.09

0.27

global markets.
More shoppers are buying
online because sometimes it's
simply easier. Schedules are
packed and stores can be
crowded, so shopping from a
computer or smartphone

Online Shopping

0.05

0.15

skips those challenges.


To create more sustainable
consumption, UPS must

Change in Consumer
Behaviour

reshape demand by making it


0.04

0.16

more personal and relevant to

UPS CASE ANALYSIS


35

consumers and leveraging the


power of technology to drive
engagement and
transparency.
Comprehensive distribution
services to be provided
through a global network of
distribution centers that
manage the flow of goods
Alternative Facility (Providing
sea logistics at discount price)

from receiving to storage and


0.035

0.105

order processing to shipment.


Expand Internationally,
Improve Competitiveness
Demand for courier services

Global Expansion

is growing, and the call is


primarily coming from
0.04

0.16

abroad.
I t is estimated by the year
2050, there will be more than
nine billion people on the
planet. And approximately
one billion people from the
developing world are

Emerging Market Growth

entering the market for goods


0.07

0.14

and services. (UPS, 2016)


There is a clear trend for
outsourcing with both
packaging and courier
services. Outsourcing can
help provide a competitive

Logistic Outsourcing

advantage in supply chain


0.055

0.11

management by providing

UPS CASE ANALYSIS


36

greater agility and flexibility


that can help position the
company to stay ahead of
trends affecting the industry.
The advent of technology has
changed the way courier
services work. The ecommerce market is expected
to reach more than $1.5
trillion by the end of 2016
(Schmidt, 2015). This will
create huge opportunities for
Retail E-commerce Growth

parcel delivery service


0.08

0.24

providers like UPS.


The advent of technology has
changed the way courier
services work. Newer
technologies and the
increased reach of the
Internet has led to greater
transparency and advanced

Technological Advancements

methodologies of tracking
0.04

0.16

using online systems.

0.10

0.30

The U.S. Department of

Threats
Compliance with Government
Regulations

Transportation (DOT), the


Federal Aviation
Administration (FAA), and
the U.S. Department of
Homeland Security, through
the Transportation Security
Administration (TSA),

UPS CASE ANALYSIS


37

have regulatory authority


over United Parcel Service
Co.s (UPS Airlines) air
transportation services.
Intense Competition

0.2

0.8

The impact of competition on


a local, regional, national,
and international basis. UPS
competitors include the
postal services of the U.S.
and other nations, various
motor carriers, express
companies, freight
forwarders, air couriers and
others. The industry is
characterized by high
shipping volumes, low
weights, and timely delivery
of shipments.

Premium Charges in

0.025

0.05

Delivering Goods

The company has recently


revised the pricing structure
of its ground delivery
business, and it's announced
that it would now consider
the size of the parcel, and to
just weight, when charging
customers.

High Cost of Trade

0.025

0.05

The US has witnessed the


emergence of a number of
regional carriers such as
OnTrac and Eastern
Connection, which are
providing cheaper, faster

UPS CASE ANALYSIS


38

delivery options to Western


and Northeast US states.
Distribution Network

0.025

0.05

Major U.S. retailers are


experimenting with new ecommerce strategies that
could dent demand for
package delivery services,
particularly demand for
shipments over long
distances, according to
analysts and industry
executives.

Amazon.com Inc is building


its distribution warehouses
closer to customers to save
millions of dollars in
shipping costs. The world's
largest online retailer is also
increasingly using its own
delivery trucks, cutting UPS
and FedEx out of some parts
of its fulfilment network.
Shifting to Subsidiaries (from

0.05

0.10

air to sea)

By providing options to ship


globally by sea limits the
bridge of the gap between the
speed of air freight and the
economy of ocean freight.

Changing Prices of Energy

0.025

0.05

Possible disruption of
supplies, or an increase in the
prices, of gasoline, diesel and
jet fuel for our aircraft and

UPS CASE ANALYSIS


39

delivery vehicles as a result


of war or other factors. UPS
will require significant
quantities of fuel and are
exposed to the commodity
price risk associated with
variations in the market price
for petroleum products.
Therefore high fuel prices
increases transportation
expenses
Privacy Breach or IT System

.05

0.15

The threat of malicious


software that compromise,
exposed customer names,
postal and email addresses
and payment card
information. How many
people were affected was not
disclosed.

Total Weighted Score

3.095

UPS CASE ANALYSIS


40

Strategy Formulation
Strategic Position and action Evaluation (SPACE) Matrix

UPS CASE ANALYSIS


41
Internal Analysis

External Analysis

Financial Strength

Industry Attractiveness

Return on Assets

Growth Potential

Return on Sales

Life Cycle Stage

Cash Flow

Gearing

Entry Barriers
Customer Power

5
4

Substitutes

Financial Strength Average

Industry Attractiveness Average

Internal analysis

External Analysis

Competitive Advantage

Environmental Stability

Market Share

-1

Political Uncertainty

-2

Quality

-1

Interest Rates

-2

Customer Loyalty

-1

Technology

-1

Cost Levels

-1

Cyclical

-3

Product Range

-1

Environmental Issues

-2

Environmental Stability Average

Competitive Advantage Average

-1

UPS CASE ANALYSIS


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Boston Consulting Group (BCG) Matrix

United Postal Service is a leader in the Air Freight and Shipping Logistics industry.
Data retrieved on the companys performance indicate that they have 51% of market share
making them the largest company having more market share than their main rivals FedEx and
USPS combined. UPS had a net margin of growth of 7.84% and had cash flow earnings of
$5,052,000,000.

UPS CASE ANALYSIS


43

Using the Boston Consulting Groups growth share matrix to analyze Upss
performance the company can be classified as a Star company. The high market share of 51%
has allowed UPS to have a large cash flow. However, as seen with most Star companies the
high growth rate has resulted in UPS consuming a large amount of cash to manage the market
share and growth of the Company.
UPS has a strategy of investing for growth which sees them partnering with
international companies by investing large sums of money with the intention acquisition in the
future. This strategy as enabled UPS to increase market share and has been one of the
companies principal strategy since going public in 1999.

UPS CASE ANALYSIS


44

Internal to External Matrix (IE) for United Parcel Service (UPS)


The Total IFE Weighted Scores
Strong
3.0 to 4.0

Average
2.0to 2.99
II

Weak
1.0 to 1.99
III

4.0

3.0

IV

VI

VII

VIII

IX

High

The
EFE

Medium

Weighted
Total

Weighted
Scores
2.0

Low

1.0

The Internal External (IE) Matrix was collated by using the data collected in the Internal
Factor Evaluation (IFE) Matrix and the External Factor Evaluation (EFE) Matrix. The IFE
provided a score of 2.163 plotted on the x axis while the EFE score was 3.095 plotted on the y
axis. Using these scores on the IE Matrix placed UPS in the Cells I and II which suggests that
the grow and build strategy is the best one for UPS to undertake at this time. For UPS this
means the strategy should be intensive and aggressive. The strategies should focus on market
penetration, market development, and product development. From the operational perspective,
a backward integration, forward integration, and horizontal integration should also be
considered.

UPS CASE ANALYSIS


45

Strategy Implementation

Financial Ratios
Financial Ratios
Actual
2015
2016
Gross Profit Margin
77.82% 78.04%
Current Ratio
1.23
1.25
Earnings per share
5.49
5.68

Projected
2017
79.35%
1.43
5.75

2018
81.35%
1.57
5.82

Earnings per Share/ Earnings before Interest on Tax (EPS/EBIT) Analysis


Break-even EBIT Level
Break-even EBIT level is the indifferent point where EPS under alternative financing plan is
the same. Mathematically, the break-even EBIT level is:

(EBIT* - I1) (1 t)
--------------------------n1

(EBIT* - I2) (1- t)


=

------------------------n2

Where,
EBIT* = indifference point between the two alternative financing plans
I1, I2 = interest expenses
t

= income-tax rate

n1, n2 = number of equity shares outstanding after adopting financing plans 1and 2

UPS CASE ANALYSIS


46

Assumptions:
1. Financing the recommendations by issuing equity in the market to raise the number of
outstanding equity shares from 882,670,616 to 1,000,000,000
2. financing, a new project by issuing bonds which will carry interest expenses of
1,400,000 and keeping the number of outstanding equity shares the same

(EBIT* - 0) (0.75)
----------------------1,000,000,000

(EBIT* - 1,400,000) (.75)


= -----------------------------------882,670,616

tax rate = 35%

EBIT*=1,401,237,000

Since the current EBIT crosses the above indifference level EBIT, the use of fixed-cost
source of funds would be beneficial and the financial leverage would be favourable.

EPS

To understand how this capital structure and growth plan will impact EPS, we can solve
the following formula and The resulting EPS will tell us if this capital structure is the best
way to fund the growth plan and also improve EPS.

UPS CASE ANALYSIS


47

1,401,237,0001,400,000)(.75)

EPS= (

882,670,616

EPS=$1.19

This works out to a projected EPS of $1.19, well below the existing $5.49 per share.
This analysis tells the company's management and investors that this plan is far from optimal.
While it may increase EBIT, the cost of the new debt and the new shares outstanding are too
great to support the company's earnings per share.
In order to pursue this growth plan, the company must either change the balance of debt and
equity financing, find cheaper sources of funding, or find a new plan that can generate a higher
growth rate to support the costs of interest and equity.

Limitation
Use of EBIT-EPS analysis can determine which financing alternative maximizes EPS.
However, it is possible that maximizing EPS results in such a high risk level that the weighted
cost of capital is not minimized, and therefore the value of the firm is not maximized
Current and Projected Financial Statements for years 2015 through 2019

Revenue ($ Million)

2015
$64,055

2016
$70,461

2017
$78,916

2018
$88,386

2019
$98,992

UPS CASE ANALYSIS


48

Total operating expenses


Total operating profit
Other income (expense)
Income before income
taxes
Income tax expense
Net Income

$55,927
$8,128
$329
$7,799

$58,724
$11,737
$327
$11,410

$61,660
$17,256
$325
$16,931

$64,743
$23,643
$323
$23,320

$67,980
$31,012
$321
$30,691

$2,652
$5,147

$3,879
$7,531

$5,757
$11,175

$7,929
$15,391

$10,435
$20,256

Total Logistics and


Freight Services (Global)
UPS' Total Revenues (as
stated above)
UPS' Market Share

$337,02
4
$64,055

$353,87
6
$70,461

$371,56
9
$78,916

$397,57
9
$88,386

$425,41
0
$98,992

19.01%

19.91%

21.24%

22.23%

23.27%

UPS CASE ANALYSIS


49

PROJECTED BALANCE SHEET


2015

2016

2017

2018

2019

Cash And Cash Equivalents

2,730,000

3,276,000

3,931,200

4,717,440

5,660,928

Short Term Investments

1,996,000

2,395,200

2,874,240

3,449,088

4,138,906

Net Receivables

7,134,000

8,560,800

10,272,960

12,327,552

14,793,062

Inventory

Other Current Assets

1,348,000

1,617,600

1,941,120

2,329,344

2,795,213

Total Current Assets

13,208,000

15,849,600

19,019,520

22,823,424

27,388,109

Long Term Investments

473,000

567,600

681,120

817,344

980,813

Property Plant and Equipment

18,352,000

22,022,400

26,426,880

31,712,256

38,054,707

Goodwill

3,419,000

4,102,800

4,923,360

5,908,032

7,089,638

Intangible Assets

1,549,000

1,858,800

2,230,560

2,676,672

3,212,006

Accumulated Amortization

Other Assets

1,055,000

1,266,000

1,519,200

1,823,040

2,187,648

Assets
Current Assets

UPS CASE ANALYSIS


50

Deferred Long Term Asset Charges

255,000

306,000

367,200

440,640

528,768

Total Assets

38,311,000

45,973,200

55,167,840

66,201,408

79,441,690

Accounts Payable

5,497,000

6,596,400

7,915,680

9,498,816

11,398,579

Short/Current Long Term Debt

3,735,000

4,482,000

5,378,400

6,454,080

7,744,896

Other Current Liabilities

1,464,000

1,756,800

2,108,160

2,529,792

3,035,750

Total Current Liabilities

10,696,000

12,835,200

15,402,240

18,482,688

22,179,226

Long Term Debt

11,316,000

13,579,200

16,295,040

19,554,048

23,464,858

Other Liabilities

13,693,000

16,431,600

19,717,920

23,661,504

28,393,805

Deferred Long Term Liability Charges

115,000

138,000

165,600

198,720

238,464

Minority Interest

21,000

25,200

30,240

36,288

43,546

Negative Goodwill

Total Liabilities

35,841,000

43,009,200

51,611,040

61,933,248

74,319,898

Liabilities
Current Liabilities

Stockholders' Equity

UPS CASE ANALYSIS


51

Misc Stocks Options Warrants


Redeemable Preferred Stock
Preferred Stock
Common Stock

9,000

10,800

12,960

15,552

18,662

Retained Earnings

6,001,000

7,201,200

8,641,440

10,369,728

12,443,674

Treasury Stock

-51,000

-61,200

-73,440

-88,128

-105,754

Other Stockholder Equity

-3,489,000

-4,186,800

-5,024,160

-6,028,992

-7,234,790

Total Stockholder Equity

2,470,000

2,964,000

3,556,800

4,268,160

5,121,792

Net Tangible Assets

-2,498,000

-2,997,600

-3,597,120

-4,316,544

-5,179,853

Capital Surplus

assets & liabilities will increase by 20% up to 2019

UPS CASE ANALYSIS


52

Factors Considered in Projections and Analysis:

1. An average increase of 6% in revenue each year for the past 10 years, plus an
inflation rate of 4% until 2016.

2. Starting in 2017 the growth rate on revenue will be 7% with an inflation rate of 5%.

3. Other expenses will be reduced by increasing investment income by $2 million each


year.
4. The tax rate of 34% remains unchanged.

5. Due to UPSs growth and expansion, other companies in the industry will most likely
exit the market or reduce operations; thus, increasing UPSs market share.

6. UPS will reach its market share goal of 23% five years later in 2019.

UPS CASE ANALYSIS


53

Recommended Specific Annual Objectives and Policies


Specific Annual Objectives (3 years)
Year 1

Our team of strategist have developed two key business goals for UPS to achieve in the
following year:

1. To achieve a unified organization which is working productively and efficiently


together and which clearly understands the overall business plan.
2. To effectively introduce the treaties of international trade to facilitate acquisitions and
mergers.

To support these business goals, the recommended objectives are:

By the end of the year, all employees and organizations understand and support our
strategic goals and programs for the next three years. All plans and strategies will be
disseminated in print and audio visual formats.

Build awareness and understanding about the new changes to the rules within
international trade and logistic services compliance. This will be done in quarterly
workshops.

Year Two

United Parcel Service continues to do well however it is important for them to have clear
objectives in order to guide their efforts and resources. Our audit suggests that it will serve
UPS well to create objectives in relation to:

UPS CASE ANALYSIS


54

Efficiency we recommend that they target a 30% increase in efficiency by focusing on


a reduction of their operational costs.
-

The company can have commercial clients retaining full responsibility for
packaging and labelling their shipments this will reduce packaging errors.

We recommend that they improve customer service by providing a by establishing an


online customer care interaction platform or application.

Increase the number of daily transactions by deliberately infiltrating and overtaking


competitors market shares. Establish branches in areas where DHL was doing
domestic shipping as UPS greatest revenue stream I domestic deliveries.

Strengthen relationships with traders whose shipments can facilitate premium delivery
pricing.

Year Three

Creating fully functioning outputs

Receiving Turnaround,

Six Sigma Quality Checks,

Put-Away Time,

Input-Output Warehouse Rack Time,

Cycle Counting,

Shipping Time,

Re-Slotting Times,

Labor Times,

Human Resource Performance.

On Time Delivery To Customers,

UPS CASE ANALYSIS


55

Following The Latest Transportation Legislation,

Treating Customers Well When Delivering Goods,

Route And Lane Optimization,

Proper Tracking Mechanisms,

GPS Coordinates,

Driver Management,

Driver Kpis,

Transportation Maintenance,

And Safety Management.

Specific Policies

Quality policy

Quality is customer satisfaction. UPS should aim at reaching the level of superior quality at
low cost by achieving flawless service generation. UPS should adopt the Excellence Approach
that equally and fairly meets the expectations of its customers, employees, suppliers, society
and shareholders, which in essence is a continuous process of improvement, learning and
innovation.

Occupational health & safety (OHS) and environmental policies

UPS should guarantee to:


Improve its environmental and OHS performance in accordance with its targets and aims,

UPS CASE ANALYSIS


56

- Minimise environmental pollution by investing in environmentally friendly and OHS


standards compliant technologies in all operations,
- Reduce potential of occupational accidents and vocational illnesses by creating a healthier
and safer working environment,
- Make occupational health & safety and environmental sensitivity a way of life,
- Comply with current legal and various other responsibilities regarding the environment and
OHS activities, by means of regularly reviewing environmental and OHS hazards involving
the logistics services sector.

Customer Feedback Policy

UPS should establish effective communication channels in order to understand and quickly
respond to its customers requirements. It should undertake to respond and conclude all
positive or negative notifications received by it in accordance with the laws, international
transportation rules and the corporate procedures and to implement and continuously improve
the customers complaints handling process together with its personnel aware of customer
oriented approach.

Information Security Management System Policy

UPS should guarantee to ;

provide a secure access to its and stakeholders information assets,

Protect the usage, integrity and confidentiality of the information,

UPS CASE ANALYSIS


57

Assess and manage the risks which may comprise its and stakeholders information

assets,
-

Protect the integrity and brand image of the company,

Perform necessary sanctions in case of violation of information security,

Provide the requirements arise from national, international or sector regulations, laws and

related legislations, agreement obligations, corporate responsibilities for internal and external
stakeholders,
-

Decrease the effects of threats on business/service continuity, providing the continuity

and sustainability of the business,


-

Provide and improve the level of information security by control infrastructure.

Cooperation Policy

Foster sustainable partnerships based on mutually beneficial relations

Human Resources Policy

Ensure in employing the right people for the right job regardless of religion, language, race,
gender or disability; increase employee satisfaction; strengthen corporate loyalty and develop
efficiency; ensure participation in the decision making process by providing an environment
for self-development.

Communication policy

UPS CASE ANALYSIS


58

Guarantee vertical, horizontal and traverse information sharing amongst all parties with the
right tools and at the right time.

Financial Affairs Policy

Effective debt follow-up and collection from income generated from primary business activity,
securing acquired liquidity, financial equity provision at minimum cost wherever possible and
fulfil responsibilities on a timely basis. Keeping record of company activities in accordance
with laws, general practice codes, international accounting standards and in compliance with
unified accounting system, producing real and reliable financial statement correctly
representing operation results.

Purchase Policy

Acquiring the right product and service at the right time, at the right amount from the right
place at the right price.

Information Policy

-Rendering electronic documentation infrastructure wherever and whenever possible,


-Simplifying information access process and ensuring information safety.

UPS CASE ANALYSIS


59

Technology Policy

Keeping operational efficiency at highest level by using latest technology.

Active Management Policy

Ensuring that buildings, equipment and material provide top quality service at low costs within
product optimum lifespan.

Sustainability Policy

UPS should aim to perform its economic, social and environmental responsibilities within the
frame of Customer Oriented Approach, Employee Satisfaction, Reliability, Develop
Cooperation, Learning and Development, Taking Responsibility and Team Spirit values, in
order to provide a sustainable future by considering the needs and expectations of
stakeholders.

Corporate Social Responsibility Policy

Including all its employees, recognizing CSR as a vital part of corporate activity and being
therefore committed to a course of social responsibility in accordance with this CSR policy for
the sustainable development of society and business.

UPS CASE ANALYSIS


60

Contribution to the building of a prosperous and vibrant society by providing high-quality


logistics services through business activities based on its excellent know-how and technology.

Disclosing information openly and transparently in order to maintain and develop a


relationship of trust with its various stakeholders, and acting responsibly towards them through
various means of communication. Undertaking its business based on the principles of fairness
and sincerity, acting with the utmost respect for human rights and pursuing a high sense of
corporate ethics in the global business market which encompasses diverse cultures, morals,
ethics, and legal systems.

Striving to minimize environmental effects and utilizing resources towards the development of
a sustainable society that is in harmony with the environment.

Promoting social contribution activities as a good corporate citizen in order to realize a better
society.

Making every effort to create a pleasant and motivating working environment for all its
employees and to fully support those employees who desire self-fulfillment and selfdevelopment through their work.

Making every effort to promote fair and sound business practices among its business partners
by fostering a common awareness of social responsibility and common awareness of social
responsibility.

UPS CASE ANALYSIS


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Recommendation of Specific Strategies and Long-term Objectives

Recommendations
1. UPS has been experiencing increasing fuel costs lately, as a result of
energy prices that are escalating around the world. As a logistics
provider, fuel costs account for a significant part of operating costs at
UPS. Thus, an increase in fuel costs jeopardizes directly the
organizations profitability. The company needs to invest in alternatives
to gasoline. One way to achieve this goal is to acquire more vehicles
powered by alternative fuels or hybrid technology. The UPS alternative
fuel fleet currently includes 2700 trucks powered by compressed natural
gas, liquefied natural gas, propane and electricity (Paul Lukas. 2012).
2. The company should increase the level of training its loaders on the
companys methods of operations. The training of the loaders is an
effective way of improving the production levels. Since, the loaders are
able to meet their daily-expected production levels after gaining
adequate knowledge on the companys preloading and packaging
services. ($2M)

UPS CASE ANALYSIS


62

3. UPS needs to incorporate technology-enabled operations in preloading


and packaging operations. Technology enabled services are usually
user friendly and improves the efficiency of the company operations.
Thus, the supporting UPS services will improve the operational
efficiencies in the company. UPS is also able to leverage on the leading
edge technology to improve logistics management and visibility for the
customers. The company should implement the action of incorporating
technology-enabled operations within the next 3months. The integration
of the technology-enabled services would be a key strategy for the
success for increasing production levels in the company.
4. Develop new labeling system for all packages carried by UPS. Reduce
amount of missing or lost packages by implementing a standardized
labeling system for all packages. Implement laser printing to ensure all
labels are legible and clearly visible. Use RFID technology to accurately
track packages from their point of origin to their final destination.
Provide customers with up-to-date information about their items.
5. Automate the sorting processes. Implement automated sorting process to
reduce manual labour and in turn prevent broken or damaged packages
and reduce delivery time. This will eliminate human error in the sorting
process and ensure that all packages are sorted into the proper
warehouses or shipping vehicles and are shipped as quickly as possible.
6. Improve forecasting time-in-transit to prevent delays in aircraft
departure. Implement GPS system in all UPS vehicles to record transit
time data. Analyze data to find most efficient and consistent routes in

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63

order to ensure accurate measurement of time-in-transit and thus prevent


delays in aircraft departure. Improved time-in-transit measurements will
result in quicker delivery and more affordable shipping costs for
consumers.

Long-term Strategies
1.

Strategically locate UPS distribution centers in major cities throughout


the globe. Adding additional distribution hubs in highly populated
regions will result in reduced transit time and reduced transportation
costs. The decrease in transit time and transportation costs will lead to
higher profit margins and customer satisfaction

2.

Due to the continual growth of e-commerce and online purchasing


habits of customers, UPS should focus on implementing strategic
measures to account for future demand and a rise in online shopping
over the past five years. This approach will aid them in keeping up with
the growing e-commerce industry, in which shipping companies will
need to account for a greater number of deliveries between retailers,
manufacturers, and consumers occurring online. Since web-based,
business-to-home deliveries are UPS specialty in the current market,
they must respond to rising costs by starting to price deliveries based on
the size of ground shipments rather than solely on weight alone,
resulting in a higher profit margin for themselves. As more and more

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64

customers adapt to the online world of e-commerce, UPS primary goal


should be to bypass the low costs of their competitors and implement
next day delivery into their business model for this growing industry
3.

Due to the emerging popularity of green initiatives, United Parcel


Service should focus on increasing the sustainability of their business
model through new packaging options and ground transportation
methods. This approach will greatly improve the companys image and
reputation while decreasing long-run operating costs. UPS has already
made indirect efforts towards sustainability via their Forestry Initiative,
but a more direct approach with greater visibility will likely prove much
more effective.

Comparison of Recommendations to the Actual Strategy


This recommendation focuses on improving the overall experience of the customer. UPS will
improve their reliability and delivery time, ensure that shipping costs are affordable, and
provide industry-leading customer service. The company will allocate funds to accelerate the
research and strategic placement of distribution centers. In addition, UPS will invest in
technological research regarding GPS, automated sorting, and labelling systems. The resultant
findings will then need to be analyzed in order to determine the most cost efficient way to
purchase and implement new systems. These recommendations are similar in nature to UPS
growth strategy which includes:
Deploying technology-enabled operations
Providing unique and industry-specific customer solutions

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65

Expanding their global network


Serving the needs of end consumers around the world

Advantage of Alternative Strategies


Improving efficiency and technological innovation to minimize delays and
unnecessary costs
Lower operating expenses
Increased efficiency
Focusing on sustainability will increase job satisfaction and create a positive company
culture

Disadvantages of Alternative Strategies


Huge investment into technological research and spending
The introduction of a new e-commerce division may cause traditional employees
to feel threatened

Implementation
This recommendation requires UPS to increase spending on research and analysis in the field
of new technologies. At the completion of said research and analysis, UPS will need to
allocate funds for the purchase of technologies as well as land and building expenses for new
locations. In addition to these expenditures, employees will need to be trained to work the new
technologies that UPS implements. Because of the large investment, Research and

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66

Development, Engineering, and Finance teams will be heavily involved in the decision making
process.

Estimated Cost of Implementing the Strategies

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67

Value of Implementation

Through implementing these changes in their business model, UPS can expect to increase
global market share and customer satisfaction while capitalizing on their core competencies of
reliable and timely delivery, affordable shipping costs, and customer service. Since UPS
reported total annual net income of $3.032 billion in 2014. We can expect their profit margins
to continually increase as we implement these changes into their operations strategy.

ROI: Value/Cost, where $3,032,000,000/19,305,000 = 157.06 Return on Investment

Enacting these changes to UPSs operations department results in an ROI of 157.06 times the
investment, which leads us to believe that the implementation of these changes is well worth
the investment. We can assume that these measures of operations efficiency will satisfy the
current and future customer base that UPS currently caters to.

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Deployment Framework for the Recommended Alternative

Time Frame
Action
Beg
(Q/Yr)

End
(Q/Yr)

Person
Responsible

Cost

Strategically Locate Distribution Centers

Research distribution
of demand in U.S.

Q1/2016

Q2/2016

Research
Department

$50,000

Determine top 3
optimal locations and
operational needs for
each

Q2/2016

Q2/2016

Research
Department

$50,000

Research real estate


in those 3 locations

Q3/2016

Q4/2016

Research
Department

$100,000

Purchase buildings
that fulfill operational
needs

Q4/2016

Q4/2016

Purchases
Department

$1,750,000

Hire contractor to
make additional
changes to structure

Q1/2017

Q4/2017

Human
Resources
Department

$100,000

Interviews and hiring


of managers (one for
each location)

Q4/2017

Q4/2017

HR
Department

$175,000

Interviews, hiring, and


training of new
employees

Q4/2017

Q1/2018

HR
Department

$1,000,000

Interior design and


decoration

Q1/2018

Q2/2018

Marketing
Department

$75,000

Update transportation
routes to include new

Q2/2018

Q3/2018

Operations
Department

$80,000

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locations
10

Analyze and monitor


changes in transit
time and delays

Q2/2018

Ongoing

Operations
Department

----

Improve forecasting of time-in-transit


1

Research GPS
technologies and
determine the optimal
device for UPS
vehicles

Q1/2016

Q2/2016

Research
Department

$90,000

Purchase devices for


one distribution center

Q2/2016

Q3/2016

Purchases
Department

$250,000

Install devices in
vehicles

Q3/2016

Q3/2016

Operations
Department

$100,000

Train employees to use


the devices accurately

Q3/2016

Q4/2016

Operations
Department

$150,000

Appoint a team to
monitor the route data
collected and instruct
drivers based on the
most efficient routes

Q4/2016

Q2/2017

Human
Resources
Department

$300,000

Analyze and monitor


the effect of the GPS
devices and resultant
route data on delays
and time-in-transit

Q2/2017

Q3/2017

Analysis
Team

$300,000

If results are positive,


implement the devices
at all other locations

Q4/2017

Q1/2018

Operations
Department

$4,000,000

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Automate Sorting Processes


1

Research automated
sorting technologies
to determine the
most suited system

Q1/2016

Q2/2016

Research
Department

$100,000

Purchase automation
system for one
location

Q2/2016

Q3/2016

Purchases
Department

$500,000

Install the system

Q3/2016

Q4/2016

Operations
Department

$15,000

Monitor the new


system to determine
efficiency and
effectiveness

Q1/2017

Q3/2017

Operations
Department

$125,000

If the system is
effective, relocate or
let go newly nonessential employees

Q4/2017

Q4/2017

Human
Resources
Department

$50,000

Purchase systems
and install them at
other locations

Q1/2018

Q3/2018

Purchases and
Operations
departments

$5,000,000

Continue to monitor
the systems to
maintain optimal
efficiency

Q3/2018

Ongoing

Operations
Department

Develop a New Labeling System

---

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Research innovative
labeling systems

Q1/2016

Q2/2016

Research
Department

$80,000

Purchase new labeling


system for one location

Q2/2016

Q3/2016

Purchases
Department

$700,000

Implement the system

Q3/2016

Q4/2016

Operations
Department

$15,000

Monitor the new


system and analyze
any changes in the
amount of lost or
missing packages

Q1/2017

Q3/2017

Operations
Department

$150,000

If the system is
effective, purchase
more systems to be
used at other locations

Q4/2017

Q4/2017

Human
Resources
Department

$4,000,000

Continue to monitor
the systems to
maintain effectiveness

Q3/2017

Ongoing

Operations
Department

---

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72

References
Bronfenbrenner, K., (2000). Worker Turnover and Part-Time Employment at UPS.
David, Fred. Strategic Management:Concepts and Cases, Global Edition, 15th Edition. Pearson
(Intl), 02/2015.
Hair, J., Bush, R., B., Ortinau, D., (2014). Retrieved from United Parcel Service: Will Big
Brown Remain The Dominant Package Delivery Service?. Retrieved from:
http://highered.mheducation.com/sites/0072467576/student_view0/chapter2/case_studies
Morlok, E K., Nitzberg, B F., Balasubramaniam, K., Sand, M L. (2000). The Parcel Service
Industry In The U.S.: Its Size And Role In Commerce. Retrieved from:
https://trid.trb.org/view.aspx?id=673517
Paul Lukas (April 1, 2012). "UPS United Parcel Service James Casey transformed a tiny
messenger service into the world's largest shipper by getting all wrapped up in the details
of package delivery".
Schmidt , A., (2015). How Has E-Commerce Changed The Courier Services Industry?.
Retrieved from:
http://marketrealist.com/2015/07/e-commerce-changed-courier-services-industry/

United Parcel Service of America, Inc. Retrieved from: www.ups.com

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Appendices

Figure 4: UPS Board of Directors

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Figure 5: UPS Senior Operations Management

Figure 6: UPS Management Committe