UPS Introduction Operations Management is a vital and fundamental key to any successful business. This form of management helps a company become more efficient, effective, and most importantly, customer satisfying. For our groups Business analysis, we studied the operational tools and ideas implemented by United Parcel Service (UPS). UPS is the world’s largest package delivery company and is always on the cutting edge of efficient delivery. Within our research of UPS, we studied aspects of facility layout, logistics, and demand management. Along the way we relate what we found with our classes’ operations book.
History Now a billion dollar company, UPS had a very humble beginning. In 1907, a young man in Seattle, Washington named James E. Casey borrowed a $100 from a friend to create The American Messenger Company. James, along with his brother and friends, delivered packages, letters, and even food to restaurants locally. Since cars were still limited at this time, the deliveries were made by foot or bicycle. Even though the company was young, it thrived because, “Jim Casey? s strict policies of customer courtesy, reliability, round-the-clock service, and low rates” (United Parcel Service, 1994-2010).
These are the very same principles that the company operated by today. In 1913 technology began to have its place in the company, when they purchased their first car, which was a Model T Ford. They also changed their name from The American Messenger Company to Merchants Parcel Delivery, resulting from a merge with a competing company. The simple name change foreshadowed what the company would be known for from then on. The new name “reflected a shift in the primary focus of the business from messages to packages” (United Parcel Service, 1994-2010). The company kept purchasing delivery vehicles and finally was able to expand out of Seattle.
In 1919, the company once and for all adopted its present name, United Parcel Service, and expanded to Oakland, California. From then on, UPS has grown to be a leading provider of delivery service, and has been on the cutting edge of specialization of the required processes to carry out their services. Facility Layout UPS provides a critical link for many company supply chains. To get products from manufacturer/supplier to customers, companies all around the world use UPS as their “middle man” for deliveries. To handle such demand, UPS has to be extremely efficient and can’t afford unnecessary costs.
One way to cut costs and remain efficient is to have an appropriate facility layout. Once a package has left a local UPS office, they get shipped off to one of the regional air hubs. The busiest and largest UPS air hub is in Louisville, KY. The layout of this extremely vast facility at 550 acres is essential to the flow of parcels and letters through the system. As we learned in class, there are 4 basic types of layout formats: workcenter, assembly line, manufacturing cell, and project layout. Out of these four formats, the UPS air hub mostly resembles an assembly line.
An assembly line is defined as “equipment or work processes arranged according to the progressive steps” (Jacobs, Chase, & Aquilano, 2009, p. 221). Even though a product isn’t being assembled, a package flows in a progressive system through the facility getting sorted and filtered out as needed. This process is highly automated using bar codes and scanners to do the necessary sorting. Human hands are only needed for unloading and loading packages onto conveyer belts, and packing pods for the airplanes. Once unloaded from a plane, a package gets loaded on to conveyer belts that total 122 miles.
The belt runs the package through scanners and weight scales. The scanner and scale tells the system the type, shape, and weight of the package. After it is scanned, packages get sorted to smalls, parcels, or irregulars. When the package has been sorted by type, machines continue to scan and group them by destination all the way down to zip codes. Because of the high automation of the system, the air hub avoids a key problem a lot of assembly lines run into, assembly line balancing. Assembly line balancing is “the problem of assigning all the tasks to a series of workstations so that each workstation has no more than can be done…. nd so that idle time across all workstations is minimized” (Jacobs, Chase, & Aquilano, 2009, p. 228). Since machines can be synced with one another, processes flow in a consistent, calculated manner. Having a facility laid out in this manner allows for high efficiency, because packages are continuously being processed through the system at high speeds and low costs. Demand Management Running such a large company can come with many obstacles and challenges. For a company like UPS, these challenges can come with the need to forecast the projected demand for shipping.
UPS has gotten every process it does down to the smallest detail, and is practically a science. They can accurately predict the volume they will be shipping, whether it is daily, weekly, or yearly; sometimes so accurate, the forecast is within a few pieces. When forecasting volume, UPS takes many things into consideration. UPS looks at the previous year’s volume shipped on a certain day, and strangely is very accurate to the volume being shipped on the current day. The bigger companies that ship through UPS tend to ship very consistently, allowing for UPS to be more accurate in their forecast.
Taking the past volumes into consideration, logistics and planning people look at how much the city has grown in the past year. They then take the growth percentage and apply it to the previous year’s volume. This method tends to give accurate projections of what the company has in store for them on any given day. Sales of major manufacturers are also taken into account when forecasting. When UPS’s leading shippers, such as Wal-Mart, have these huge sales, UPS can just about guarantee that the volume of packages from that company is going to increase. There is a time of year that everyone at UPS anticipates; that time of year is Peak Season.
Let’s just say that every year around the holidays, Santa has been lazy and uses UPS as his major way to ship. The holidays, or peak season, is when UPS realizes its greatest volumes for the year. Demand for its service increases greatly, beginning right before what we call “Black Friday”. Every year before peak season, materials such as empty pods, are sent to the bigger air hubs because of the increased demand. Plane scheduling is also revised; bigger planes are sent to the bigger cities with busier routes, while smaller planes are sent to places that aren’t as big but with increased frequency of arrivals.
Also, people are hired seasonally to help deal with the increased workload. After the Christmas season, things begin returning to normal, but UPS always has a sure bet that they will always have great business around that time. Not always is the demand for shipping as high as peak season, it tends to decrease at certain times of the year. UPS has implemented many solutions to try to deal with this decreased demand. In one program, UPS encourages its employees to actively go out and “recruit” potential customers.
Whether it is a family member who owns a business, or a store who currently uses FedEx, the employees are asked to go out and aggressively take business away from competition. When a sales lead is given to management, a professional sales person is sent out to the business interested, and goes over options and different pricing discounts UPS can offer. If the potential lead indeed becomes a new customer, the original employee who gave the lead is given a percentage of the sale from every package ship. This is an incentive UPS gives for their employees to actively go out there and create demand for the company.
