TORONTO — United Parcel Service of America Inc. (UPS) and Grocery Gateway may be on opposite ends of the spectrum size-wise but they have at least one thing in common: a cautious
approach to IT adoption.
UPS employs more than 5,000 people in its IT department alone and tracks seven million packages a day on its Internet portal. Grocery Gateway, on the other hand, has just five full-time developers and processes 1,500 food orders a day. UPS has matured into a multi-billion dollar company in a history that spans almost a century whereas Grocery Gateway is still finding its feet. But executives with both firms credit at least part of their success to date to the adoption of IT only when it makes sense on a balance sheet, wisdom they shared with attendees at the IT Leadership 2002 conference.
According to UPS’s vice-president of IS planning Stuart Sutcliff, the package delivery giant never really got a handle on its IT until 1985. Increasingly competitive market forces “”hit us on the head like a 2×4,”” says Sutcliff, which prompted UPS to set up an IT task force and build a package tracking system from scratch.
In the following years, that task force got approval from management for a US$50 million global data centre, a US$100 million IT centre in New Jersey and more recently, US$150 million in wireless development. By 1990, the company had developed a digital clipboard (which UPS drivers use to collect customer signatures). “”That was pretty much Star Wars for us,”” says Sutcliff.
Since then, UPS has set up four more key task forces — comprised more of business than than IT managers these days — to identify how the company become more efficient and serve customers better through the application of technology.
Sutcliff credits an efficient organization structure and harmonious relationships between business and IT for UPS’s successful use of technology. “”All of us in IT must know what the corporate direction is,”” he says. “”We get called in very early to a project to give insight.””
Compared to UPS, Grocery Gateway is practically a newborn. The company started in 1996 in founder Bill Di Nardo’s basement, funded by personal credit cards and loans from friends and family. In 1999, a proof-of-concept Web site was completed, which drew the attraction of venture capital investors and Grocery Gateway started taking food orders. The story sounds much like the hundreds of other companies that got their start during the dot-com gold rush. Unlike most, though, Grocery Gateway is still around and taking orders.
By definition, Grocery Gateway is in a low-margin, high volume business, says Brian Miller, vice-president of technology, who joined the company in 2000 after a 12-year stint as an IBM software developer. There isn’t much profit to be turned on delivering bananas, he notes.Because of that, the company has had to be very careful about how quickly it grows, how much cash it is willing to spend on new technology and whether it even really needs new technology at all.
Grocery Gateway now has two distribution centres in Ontario equipped with barcode-scanning technology. When a “”shopper”” (the person that collects a food order for delivery to its eventual customer) scans the barcode of an item requested, it sets off a light on one of the warehouse aisles, directing them to the next food item on the list. The technology was deemed necessary, says Miller, because its speeds up the collection process exponentially and the company had grown to a point where it made sense.
According to Miller, introducing new IT is all about timing it properly to coincide with the company’s growth. “”In the early adoptive phase, customers forgave a buggy Web site because they wanted the service to work,”” he says. But they won’t put up with it forever, particularly as the company attracts a broader demographic and people with less patience for imperfect IT.
Grocerygateway.com now has somewhere between 99.9 and 99.99 per cent uptime reliability, says Miller. That may not to be perfect, but it’s as perfect as it needs to be right now. The reason why American online grocer WebVan declared bankruptcy last year is because it spent US$850 million up front to achieve a 99.999 standard, says Miller.
UPS’s annual IT budget is in the US$1 billion range, says Sutcliff, “”but 65 per cent of that is just turning on the lights.”” UPS has a team of people that visit IT-related trade shows and conferences and report back with news of up and coming developments in technology. This information is passed along to the IT decision makers and socked away for future use. Technology won’t be introduced to UPS simply because it’s new or cheap, says Sutcliff.
UPS feels that wireless technology has sufficiently come of age that it now makes sense to bring it into the company, says Sutcliff. The company is gearing up to replace the 55,000 scanners it uses in 1,800 buildings with 802.11b and Bluetooth wireless technology. UPS currently uses 19 different types of scanner, which it aims to replace with just one model, which should help drive the total cost of ownership. “”The annual cost of just fixing that little wire would probably buy you a Carribean island,”” says Sutcliff, pointing to one of the older models.
Sutcliff is going to Buffalo, N.Y., tonight to inspect the new technology, but it will be almost two years before some UPS employees actually get to use it. The company plans to start rolling it out in July 2003 and won’t finish until a year later.
Even with a circumspect attitude towards technology expenditure, UPS is still accused of being one of the more expensive carriers available. “”I think we’re constantly looking at that, but I’m not sure how successful we’ve been,”” says Sutcliff. “”It’s certainly a challenge. I think Canada has always been a very competitive market for us.””
Grocery Gateway aims to be among those competitors, says Miller, at least as a niche player. The company has managed to stay aloft by scrutinizing its costs — it adopted an EMC warehousing solution because EMC had already started work on a configuration with a now-defunct U.S. online grocer — but to maintain the current business model it will have to double its revenue, he says. The obvious move, then, is to branch out and become what Miller terms a “”last mile logisitics”” company.
The groundwork has already started, says Miller. Grocery Gateway acquired Direct Home Delivery and e-fulfillment company Skulogix Inc. last year and has deals in place with the Liquor Control Board of Ontario (LCBO) and Montreal coffee company Van Houtte Inc. Grocery Gateway aims to expand its business beyond food to include delivery of other products. Roots clothing would be an ideal target, says Miller.
But adding IT is a constant juggling act, says Miller, based on competitive market forces and how it impacts the bottom line. “”How much do I invest to keep the place running?”” he says. “”How much do I invest to stay ahead of the curve? I have to understand the business.””
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