A Model Brick and Click Emerges

[From iSource Business, February 2001] When a caterpillar emerges from its chrysalis it's a butterfly. But when a company undergoes a metamorphosis and emerges into the New Economy, what is it? Its DNA is the same, but it looks and acts differently. Take AT&T for example. By the time we go to press AT&T may have spun off its long-distance service in order to concentrate on wireless and cable-based Internet broadband. It won't be your grandparents' AT&T, but it may emerge as something even Pa Bell would recognize.

United Parcel Service, the subject of our story, is such a creature. The nearly 100-year-old, $28 billion company delivers six percent of the nation's Gross Domestic Product and already controls half of all e-commerce deliveries. Since 1998, UPS' business is up 78 percent and 80 percent of its Logistics Group's business is B2B. Under these circumstances, it's easy to lose perspective when you learn just what goes on after a customer calls UPS for pick-up. It has 2.5 million customers, 345,000 employees, 160,000 trucks and a staggering 74-terabyte database of customer and package information that helps track 90 percent of all the packages it touches. Now it's building the e-commerce side of the house and becoming the "brick-and-click" it always knew it could be because, finally, the technology came along that allowed it to turn that big database into useful services for its customers and added value for its shareholders. If you've ever been at the right place at the right time you understand why it may never have occurred to UPS to not throw its arms around the Internet.

The Internet: It collapses time and distance, the genetic material of all logistical support services. UPS' very large, worldwide footprint doesn't fully protect it from the kind of clever competitors e-commerce can quickly grow through consolidation and partnerships. No one is quite sure yet that companies will rush to outsource their logistics or, as UPS proposes, management of their entire supply chains. Just-in-time inventory management isn't new, but the Internet makes it a more far-reaching reality, enabling companies to save money, knock their inventories down to zero and still keep control of a critical part of their business by investing in technology to manage their own logistics operations rather than farm them out.

Spreading Their Wings

UPS.com was launched in 1994 after which time the company's mission started to change in earnest. According to Alan Amling, director of the company's Alliance Program, "Three years ago, if you'd asked anyone what the mission was, it was to be the leading package deliverer worldwide. [In 1999] the company's leaders came out with a new mission statement to be the leading global e-commerce company."

That timing coincided with the announcement of eVentures, an incubator founded by UPS to develop full-service logistics capabilities through a combination of start-ups, mergers, acquisitions and partnerships. A management team of vice presidents that oversee day-to-day operations conceived the idea and decided the company should set up subsidiaries to pursue its e-commerce strategy, in part because of the anticipated differences in temperament between UPS and its subsidiaries. While some things at UPS shouldn't change, its Internet start-ups were all about change and needed a more freewheeling environment. Meanwhile UPS would continue to provide the package delivery services its customers depend upon less they should risk the costly trial and error that could disrupt and potentially damage the company's core business.

"The essential issue was to keep pace with the New Economy and e-commerce. The transportation company had a full-time job. If you want to explore other e-commerce ideas, you need a separate arm to do it so it doesn't conflict with core competencies," says Mark Rhoney, president of eVentures. He's also candid about UPS' decision making process