Building on a good thing

UPS die-hards, including chairman and CEO Michael Eskew, like to say they have brown blood running through their veins. That makes them about as far removed from blue bloods as you can get, but that kind of talk strikes at the very heart of what it means to work for a courier company — the biggest

in the world with annual revenue of US$31 billion — that likes to refer to itself simply as Brown. It is not glamorous imagery to be sure, but it is reassuring in a small-town America kind of way, like Friday night at the bingo hall, and Sunday afternoon in the park.

When Alan Gershenhorn, the 44-year-old CEO of Mississauga, Ont.-based United Parcel Services (UPS) Canada Ltd., is asked whether he has brown blood running through his veins he is visibly taken aback by the question. He pauses for a moment to consider his answer. “”Yes, of course I do,”” he finally says in his Long Island, N.Y. accent.

Not a resounding yes, but Gershenhorn’s commitment to UPS can’t be questioned. He began working for Atlanta-based parent company, UPS Inc., 23 years ago as a part-time loader while studying finance at the University of Houston. Over the years he has slowly risen through the ranks — UPS has a stated policy of hiring from within whenever possible — and in January 2002 he was appointed to the most senior position of his career, overseeing a staff of 6,500 employees serving every address in Canada.

When asked about his mandate for Canada, Gershenhorn gives a prepared, if somewhat surprising answer. “”We want to help our customers accelerate their growth,”” says Gershenhorn. Really? What about ramping up revenue, increasing profit margins, acquiring new customers and reducing costs? Yes, all those things are important for Gershenhorn, but UPS is taking a big-picture approach to its business.

“”We can provide low-cost courier services, but that’s not really what our business is about. We want to demonstrate to clients how we can bring cost savings to their internal processes, improve their productivity and deliver superior customer service to their customers.””

Indeed UPS is not so much a courier company, as it is a supply-chain specialist. That means it is a one-stop shop for anyone who not only wants to move a box from A to B, but also wants someone to take care of their customs brokerage, drop shipping, warehousing and financial-services needs.

This strategy has enabled UPS to break out of the US$80-billion global courier business, and become a major player in the US$3-trillion global supply-chain management business. “”We’ve gone from being a courier company to an enabler of global commerce,”” says Gershenhorn. Consider that UPS moves 13 million shipments daily, using 600 aircraft and 88,000 vehicles operating in more than 200 countries and territories. How does UPS manage such a complicated matrix of activity? The linchpin holding everything together is information technology. Indeed UPS has spent US$11 billion on its IT infrastructure in the last 15 years.

Those investments were largely made to improve internal processes, but in the last three years UPS has turned the orange inside out to better serve its customers. That boils down to making it possible for clients to outsource some or all of their supply-chain management functions to UPS, while at the same time gaining more control over their supply chain by tapping into the company’s powerful IT backbone with a suite of online tools. The net result is clients are in a better position to manage their deliveries, inventory levels and a variety of post-sale services including warranty repairs.

In an industry where the flow of information is nearly as important as the physical movement of boxes, UPS seems to have hit on a winning formula. “”We control the supply chain of many Fortune 500 companies,”” says Gershenhorn. A case in point is Mississauga, Ont.-based Hewlett-Packard Canada Ltd. After outsourcing its warehouse operations for replacement parts to UPS, it was able to close 20 depots across the country, and obtain greater control over the movement of spare parts through its network of in-house technicians and contractors.

“”We realized significant cost savings from outsourcing,”” says Greg Morrison, manager of distribution for HP Services Canada. Morrison is particularly happy with the return service his company deployed in partnership with UPS in 2000. Under the new system, each shipment to a repair technician comes with a return label that distinguishes unused parts from defective parts. That may not sound like a big deal, but it has helped reduce overall inventory levels by getting unused parts back into general circulation more quickly.

“”We have taken transportation and handling out of the system by directing parts to where they need to go as a final destination,”” says Morrison. “”There is no more need for paper way-bills because the return information is loaded in advance and tracked automatically.””

It is hard to argue with a better mouse trap, but becoming entrenched in client’s day-to-day operations may have a slightly dark side. “”Companies who outsource their logistics become so dependent on their supplier that divorce becomes very difficult,”” says Phil Cahley of the Canadian Courier and Messenger Association. “”Once you get into systems integration, you tie a customer’s hands to use your service. Down the road if there are cost and rate increases there is not much the customer can do about them.””

There’s no doubt it is much easier to switch couriers than supply-chain providers, but the benefits of having a powerful supply-chain partner in your corner outweigh the costs, particularly for smaller companies. For example, Concord, Ont.-based BoardZone Inc., an e-tailer of snowboards and accessories, was unsuccessful in cracking the lucrative U.S. market until it hooked up with UPS Canada in July 2001. Prior to that, it had worked with two other courier companies in what president Don Moscoe describes as “”nightmare scenarios.””

UPS Canada came to the rescue with its cross-border service, which allows Canadian companies to establish a beach-head in the U.S. without opening an office there. In the case of BoardZone, UPS Canada can consolidate its shipments to the U.S., which means the company pays a single brokerage fee per container, rather than per item. Once the merchandise is in UPS’ Buffalo warehouse, staff pick and pack individual orders on behalf of BoardZone, and send them out to customers at U.S. rates, instead of more expensive international rates.

BoardZone can also import snowboarding jackets and pants from Asia directly to the UPS warehouse in Buffalo, thereby avoiding messy quota restrictions by eliminating Canada from the equation. “”We do a huge amount of business around Christmas,”” says Moscoe. “”With UPS all our orders are out on time, and we now do 60 per cent of our business is the U.S.””

What is Gershenhorn’s biggest challenge over the next 12 to 18 months? “”We have to help some of our customers think differently about what a courier company can do for them. It’s not just about getting a package to someone at the right time and right place. The bigger issue is what Brown can do for your whole supply chain.”” In some cases that will be a hard sell, but the brown blood in Gershenhorn’s veins will not allow him to give up easily. After all, whoever converts a company to this new way of thinking first wins.

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Jim Love, Chief Content Officer, IT World Canada

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