Tag: UPS

OM in the News: How UPS is Using Operations Research

UPSAfter 10 years of research and development, United Parcel Service is officially launching an automated system that uses algorithms to devise optimal routes for its drivers, reports The Wall Street Journal (Oct. 31, 2013). It says the new tool will slash fuel consumption and costs, and support the creation of new services. UPS’ CIO said that the company believes that its on-road integrated optimization and navigation program—dubbed Orion—is the world’s largest operations research project. Ten thousand of its 55,000 drivers will be on the Orion system this year, and it will be fully deployed by 2017.

The effort involved a team of 500 workers. The computer scientists in the group have written an algorithm with 1,000 pages of code. It’s the largest technology project at UPS, which invests $1 billion a year in technology. First, the company had to install GPS sensors to track its drivers and vehicles, a technology known as telematics. That effort already has avoided about 100 million minutes of engine idling. UPS then devised its own mapping system, which includes about 250 million delivery points, a database that is updated continually.

The company’s operations research group devised algorithms that calculate the best route for each driver on a given day. In 2008, those calculations could take hours to perform. Now, they are done in 8 seconds.

The payoff on the investment will be measured in a variety of ways. The company stands to save $50 million a year if every driver can simply reduce the length of his or her route by one mile a day. That will help UPS reduce fuel consumption and environmental impact, while allowing drivers to make more deliveries per day. This year, technology will help the company save 1.5 million gallons of fuel and reduce CO2 emissions by 14,000 metric cubic tons.

Classroom discussion questions:

1. Why does UPS invest so heavily in technology?

2. What other approaches can UPS employ to impact sustainability?

OM in the News: UPS and its Team of Pharmacists

UPS is well-known for its army of brown-uniformed delivery drivers. Less known is that the package-delivery giant has its own team of pharmacists. At UPS’s Louisville headquarters, company pharmacists fill 4,000 orders a day for insulin pumps and other supplies from customers of medical-device company Medtronics. UPS pharmacists  log into Medtronic’s system, fill the orders with devices stocked on site, and ship them to patients, via UPS.

It is one part of the growing reach, writes The Wall Street Journal (June 28, 2012) by UPS—along with rivals FedEx and DHL—into the business of running supply chains for pharmaceutical and medical-device companies. Medtronic and other health-care companies are increasingly outsourcing logistics as they look for ways to cut costs from backroom operations and focus on product development instead (see Chapter 11). UPS’s service has allowed Medtronic to close its own distribution warehouse and see a significant reduction in the costs of processing each order. “If you’re a medical company, logistics isn’t your core expertise,” says an industry analyst.

The parcel-delivery companies are investing in megawarehouses that service multiple pharmaceutical companies at once, with freezers for medicines and high-security vaults for controlled substances. UPS got into health-care logistics in 2006 and the business has grown rapidly, with 33 health-care logistics facilities around the world, including a plant in Brazil opened last year specifically to handle the supply chain in that country for Merck.

Walgreen chose UPS to transport $9 million of donated flu vaccine—375,000 doses, to Laos in March. Fifty UPS “health care logisticians” coordinated the complicated journey. The 8,500-mile flight took five days and included four stops, ending in Bangkok, where the containers were loaded onto a truck for Vientiane, Laos.

Discussion questions:

1. What are the risks to UPS in entering the medical supply chain business?

2. Why would medical companies outsource their order systems to  parcel companies?

OM in the News: OM and the Christmas Rush at UPS

“Lots of people like a white Christmas, but the notion keeps United Parcel Service up all night”, writes the Wall Street Journal (Dec. 23, 2011). Which is why UPS picked Louisville and its mild climate for its sprawling global hub. The  Worldport spans the length of 90 football fields and employs 6,000 graveyard shift workers to fulfill its next day service. And during this busy holiday season, even desk job employees jumped in to handle the overload as it travelled down 155 miles of conveyor belts.

About 125 jets –up from 85 the rest of the year–landed each night this season, all between 11pm and 3am. The packages had to be sorted and reloaded onto planes before sunrise to reach their final destinations. It’s all about operations management, just as it is for FedEx (which we describe in the Global Company Profile for Chapter 8, Location Strategy). If a flight is late and the package misses its delivery, freight operators generally have to eat the cost of the shipment. Each late delivery subtracts $5-$30 from UPS’ bottom line.

UPS meteorologist at the status board

A “hot status board”on the wall lists cities and regions where UPS positions spare planes and crews, prepared to “rescue volume”, that is, packages stuck somewhere because of weather or mechanical problems. More than a million such packages are indeed “rescued” every year at UPS. If they had been late, the loss would have been $20 million.

Discussion questions:

1. Why did UPS select Louisville as its Worldport hub?

2. Why is OM at the heart of UPS’ business?

OM in the News: UPS Drivers Pick Up the Pace

In Chapter 10’s discussion of work measurement, we describe UPS as “one of the most efficient companies anywhere in applying effective labor standards”. And in Chapter 6, Managing Quality, we provide a photo of a UPS driver and talk about the 340 precise methods he is taught to correctly deliver a package. So I guess it shouldn’t come as a surprise that the company which designs its routes so drivers avoid left turns (so as not to waste time waiting for a break in oncoming traffic), has added yet a 341st time saver!

The Wall Street Journal (Sept.16, 2011) describes how UPS ‘ newest cost-savings strategy–taking away the drivers’ keys–will save $70 million a year.  Currently, drivers are required to carry key rings on their ring finger to avoid wasting time searching for them. Still, wrangling with keys can waste valuable seconds. Once a driver stops, he or she has to take the keys out of the ignition, then turn around to use them to unlock the bulkhead door that leads to the packages. Soon, drivers will wear a digital-remote fob on their belts and will be able to turn the engine off with a button that will unlock the bulkhead door at the same time.

That will save 1.75 seconds per stop, or 6.5 minutes a day per driver–and also reduce motion and fatigue. UPS’s COO acknowledged that the company is “obsessive about efficiency”. Each night, when drivers return from deliveries, UPS  industrial engineers study data from computers aboard each truck. The data show details such as how much drivers idle, how often they back up, whether they are wearing seatbelts, or whether they are going out of their way to get lunch. All this helps shape new procedures such as the surrendering of keys.

Discussion questions:

1. Name some of the (many) other UPS efficiency techniques.

2. Ask students to identify efficiency improvements they could make at places they worked.

OM in the News: UPS Turns to Lighter Trucks for Efficiency

For as many times as it has tested electric, hybrid, and other alternative powertrains for its trucks, UPS has run into the same issues of complexity and cost. Now it’s trying a simpler route  to fuel savings. Although competitor FedEx and other fleet deliverers such as Staples, At&T, and Frito-Lay have turned to electric (see our blog on electric trucks on Dec.10, 2010), UPS is looking lighter. Using light-weight composite materials, the delivery company  is able make trucks 1,000 pounds (about 10%) lighter than today’s familiar brown “package cars”.

USA Today (June 9,2011) reports that with less weight, the new trucks can have smaller diesel engines that save 40% on fuel use–without the complexity of high-tech batteries, hybrid systems, or other advance technologies that can run up total costs. “This technology is available to us today. We don’t have to worry about plugging it in or getting propane”, says UPS’ engineering director.

The first batch of trucks is being built by Utilimaster, in Indiana, using an Isuzu chassis, powered by a simple Isuzu 150-horsepower clean-diesel engine. Isuzu, which no longer sells cars in the US, maintains a vigorous truck operation here. It sees the new diesel as a chance to trump hybrids because “we didn’t think people were going to be able to afford a hybrid or electric vehicle”. The fuel savings don’t just come from lower weight and a smaller engine. With a sleek  new look, the trucks are 13% more aerodynamic than competitors.

Comparing this approach with electric/hybrid alternatives shows once again that there is more than one way to skin the cat of increased operations efficiency.

Discussion questions:

1. What are the advantages and disadvantages of the alternatives discussed?

2. Why doesn’t every company switch to one of these new technologies?

OM in the News: UPS’ Supply Chain and the No-Left-Turn Rule

For the longest title award, we turn to this week’s Fortune (Dec. 27,2010, pp.44-51) and find Bob Stoffel at UPS. Stoffel is the Senior VP for Supply Chain, Strategy, Engineering, and Sustainability.

With the word Strategy in his title, Stoffel points out that UPS is a lot more than a transportation company. It now has 1,000 engineers who are there just to help customers with their supply chains. Zappos built its whole e-commerce strategy around UPS’ Louisville Worldport. Zappos can take an order for shoes at 10pm and have them in the customer’s hands at 10am the next day.

When a Toshiba laptop comes in for repairs, it is UPS that actually fixes it and has it back to the customer in 24 hours. “It’s a triple win”, says Stoffel. “You’ve saved transportation links, you’ve reduced inventory,… and you’ve reduced your carbon footprint”.

Regarding sustainability, UPS has improved its fuel efficiency by 10% with a fleet of all-electric trucks, hybrids, and natural-gas vehicles. And thanks to telematics, GPS, and other technologies, UPS delivered 350,000 more packages  a day over last year, but drove 53,000 miles less a day. Finally, the firm’s famous “no-left-turn” policy is part of another 20 million miles a year saved through technology by avoiding costly delays from left turns and poor routings. “It drives my wife nuts”, Stossel says. “I won’t turn left (when looking for a gas station).We’ve got to find one on the right”.

My favorite improvement is the new “Eco Responsible Packaging” program to advise shippers how to waste less space in packaging. Just think of all the small items you have received in a big box. “Our vehicles run out of space before they run out of weight capacity”, says Stossel.

Discussion questions:

1. What is UPS’ sustainability strategy?

2. How is UPS part of other firms’ supply chain?

OM in the News: Cooking Up Productivity During the Recession at Campbell Soup

The recession slashed 8.5 million jobs in the US and slowed companies investment plans–but it also pushed up productivity growth (see Ch.1). This is good news for corporate profits , and bad news for people waiting for recession-casuality jobs to come back. Annual growth in productivity, or how much output is produced in an hour of work, averaged 3.4% in the last 5 quarters…all while sales dropped another 9% during that period.

The latest  Businessweek (Nov.29-Dec.5, 2010) highlights the drive at Campbell Soup to ask “employees to help them save cash by working smarter with existing technology.”  “The reward for increased efficiency is a stable job and more business”, says Campbell’s VP-Supply Chain. His team is working to reinvent how the company makes soup.

Like carmakers who use a common chassis for multiple cars and then differentiate, Campbell is now doing the same instead of using a unique recipe for each soup. With a common chicken broth base, the firm differentiates with seasonings, meat, and vegetables.

Daily worker-manager meetings also raise productivity, with nitpicky efforts to save time, money, and effort. Operators and mechanics started numbering each gasket to speed repairs, cut windows into machine covers so they could watch for signs of wear, color-coded handles to lower confusion in settings. All these small changes added up to an increase to 85% operating efficiency, up from 75% three years ago. Each 1% gain means $3 million more in operating profits.

Businessweek also notes that UPS trucks now carry devices that track how many left turns its drivers have to make. The new system helps drivers optimize routes and will save 1.4 million gallons of fuel per year.

Discussion questions:

1. How does productivity improvement impact the re-creation of jobs?

2. Why are employees so important in productivity gains?

Teaching Tip: Location, Location, Louisville?

We open Chapter 8, Location Strategies, with a Global Company Profile on why FedEx selected Memphis as its US superhub. But Fortune (Oct.18,2010) expands on this topic, with a feature called “Louisville Flies High”.

It turns out that Louisville has great geography, economic incentives, and high tech logistics that have attracted more than 100 corporations this past decade. The city is within a 2-hour flight to 75% of the US population and sits just 40 miles from the exact center of the continental US on a population density map. Its also one hour below the frost line.

The clear supply chain draw is UPS, whose $2 billion Worldport has 30,000 conveyors and can sort 416,000 packages per hour. Toshiba now trains UPS employees to fix computers on site–and return them within 48 hours. Zappos moved to Louisville to be near the giant UPS facility also. If a package leaves the online shoe retailer (which my wife adores) at 12:45am, UPS will deliver the shoes anywhere in the country the same day.

This makes for a nice discussion in both the Location and Supply Chain(Ch.11) chapters.