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Old 06-06-2008, 05:52 PM   #1  
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Default Interesting UPS article...

Don't really understand all the details in this article but found it very interesting...


Big Brown's Logistics Business Flowing Black
Ruthie Ackerman, 06.06.08, 1:40 PM ET




Almost everyone in the logistics business knows that United Parcel Service does a lot more than ship packages these days.
When a Toshiba customer needs his or her laptop fixed, UPS employees are the ones who repair the machine, cutting turnaround time from two weeks or more to just one to two days. And when online customers or retail stores order footwear from Birkenstock Distribution USA, UPS fills and ships the orders from its warehouse in Hebron, Ky.
Less known: Brown's logistics business is finally flowing black to the bottom line.

In contrast to rival FedEx, UPS moved beyond shipping a decade ago, jumping into bed with customers to manage all sorts of operations that come after manufacturing but before delivery. It wanted to be the warehouse company, the distribution company and even the repair company for corporations.

UPS believed supply-chain and logistics management was a way to "feed the core,"--its central business of delivering small packages--and they bet big on the program, losing money for years. Now, UPS is starting to see the pay off. The delivery business is still more profitable, providing roughly 18 cents of income for each dollar of sales, compared with barely a nickel in logistics, but things are changing. UPS expects its logistics and supply-chain business to become its fastest-growing segment. And the dream is quickly becoming a reality.

The turning point for UPS came in 2007, when the company began to see consistent, sustained profitability after swallowing years of acquisition costs to get its supply-chain network up and running. After negative revenue in the third and fourth quarters of 2006, UPS finally struck gold in the first quarter of 2007 with $1.4 billion in forwarding and logistics revenue, up from $1.3 billion in the prior year.

Forwarding and logistics are sales where UPS acted as an agent, booking the use of other company's freight carriers or where UPS handled supply chain or operations management for a company, such as warehousing or repair. Revenue in this area for the first quarter of 2008 was even more promising, accounting for $1.6 billion, 72% of the $2.2 billion total revenue for the company's supply chain and freight segment. One reason for the change: the recent slowdown in U.S. economic growth and the declining dollar, which have helped to drive UPS' U.S. export business.
It didn't happen overnight. In 1999, UPS went public in order to have shares that could be used to pay for acquisitions. Since then it purchased 40 companies around the world, weaving them together to expand its supply-chain and freight capability. UPS acquired the last of those companies, Overnite Transportation, in August 2005.

UPS' offer to take care of supply-chain management is especially attractive to small- and mid-sized companies that don't want to invest the capital to cut out the middlemen or deal with several companies along the supply chain.

Take Malis-Henderson, a Montreal-based maker of bridal veils. The company naturally looked south to the big U.S. market for expansion and began shipping orders to American retail stores. But the process was clunky, filled with customs delays and long waiting periods for checks to clear. In the end, the company wasn't making much money.
Enter UPS. From a UPS distribution center on the Canadian border it sent one large shipment of veils through U.S. Customs via its customs brokerage. It then managed the supply to American retailers, providing next-day delivery as veil orders came in from stores. And, since UPS also owns a bank, it was able to collect the payments and deposit them into Malis-Henderson's account the next day.

FedEx is dismissive. "We don't love holding things or messing or toying with things," said Tom Schmitt, FedEx's chief executive of global supply-chain services. "We like to do what we do best," which is deliver packages. The company recognizes that supply-chain management is important, but, said Schmitt, "we have partners that are world-class at what they do, and we know how to integrate them as part of a joint solution."

The different approaches tend to differentiate the two delivery companies, making UPS more attractive to companies looking to ship bigger, heavier shipments around the globe and those that want to outsource their supply chains, while FedEx does better with companies that ship small pieces that don't weigh as much, such as semiconductors. The strategy is likely taking market share from smaller competitors such as UTI, Kuehne + Nagel, Freight Expediters and Panalpina rather than from FedEx.
"The UPS structure has a slight advantage," said Sunil Chopra, the IBM distinguished professor of operation management at the Kellogg School at Nortwestern University in Illinois.

By taking on what Chopra calls "commodity repairs," such as the basic repairs on laptops, UPS adds value for customers who don't have to wait very long for their computers to come home and to the manufacturer, which doesn't have to deal with the paperwork on the returns. "It's a win-win situation," said Chopra. "And we'll definitely see this happening more and more."
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Old 06-06-2008, 07:03 PM   #2  
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From another article. "UPS is also the largest corporate customer of the railroads, shipping trailers and containers from U.S. ports to inland terminals where they are attached to trucks and delivered to customers around the country."
For example: The Chicago to Los Angeles trains are often exclusive UPS. UPS is/has been frustrated by the lack of infrastructure growth in the US to speed up train delays.
All part of a multi mode logistics + service provider for customers. There is a method to the madness. Domestically, the airline is only for what they cannot put on team drivers (PHL-LAX in about 58 hours), trains, regular truck routes (that's what they are<g>) and still make service gates depending on product. It bodes well for UPS to be so integral to these companies success as per the article.
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