Thomas Friedman - The World is Flat

In addition, by making the delivery of goods and services around the world superefficient and superfast-and in huge volumes-UPS is helping to level customs barriers and harmonize trade by getting more and more people to adopt the same rules and labels and tracking systems for transporting goods. UPS has a smart label on all its packages so that package can be tracked and traced anywhere in its network.

Working with the U.S. Customs Service, UPS designed a software program that allows customs to say to UPS, “I want to see any package moving through your Worldport hub that was sent from Cali, Colombia, to Miami by someone named Carlos.” Or, “I want to see any package sent from Germany to the United States by someone named Osama.” When the package arrives for sorting, the UPS computers will then automatically route that package to a customs officer in the UPS hub. A computerized arm will literally slide it off the conveyor belt and dump it into a bin for a closer look. It makes the inspection process more efficient and does not interrupt the general flow of packages. These efficiencies of time and scale save UPS's clients money, enabling them to recycle their capital and fund more innovation. But the level of collaboration it requires between UPS and its clients is unusual.

Plow & Hearth is a large national catalog and Internet retailer specializing in “Products for Country Living.” P&H came to UPS one day and said that too many of its furniture deliveries were coming to customers with a piece broken. Did UPS have any ideas? UPS sent its “package engineers” over and conducted a packaging seminar for the P&H procurement group. UPS also provided guidelines for them to use in the selection of their suppliers. The objective was to help P&H understand that its purchase decisions from its suppliers should be influenced not only by the quality of the products being offered but also by how those products were being packaged and delivered. UPS couldn't help its customer P&H without looking deep inside its business and then into its suppliers' businesses-what boxes and packing materials they were using. That is insourcing.

Consider the collaboration today among eBay sellers, UPS, PayPal, and eBay buyers. Say I offer to sell a golf club on eBay and you decide to buy it. I e-mail you a PayPal invoice, which has your name and mailing address on it. At the same time, eBay offers me an icon on its Web site to print out a UPS mailing label to you. When I print that mailing label on my own printer, it comes out with a UPS tracking bar code on it. At the same time, UPS, through its computer system, creates a tracking number that corresponds to that label, which automatically gets e-mailed to you-the person who bought my golf club-so you can track the package by yourself, online, on a regular basis and know exactly when it will reach you.

If UPS had not gone into this business, someone would have had to invent it. With so many more people working through horizontal global supply chains far from home, somebody had to fill in the inevitable holes and tighten the weak links. Said Kurt Kuehn, UPS's senior vice president for sales and marketing, “The Texas machine parts guy is worried that the customer in Malaysia is a credit risk. We step in as a trusted broker. If we have control of that package, we can collect funds subject to acceptance and eliminate letters of credit. Trust can be created through personal relations or through systems and controls. If you don't have trust, you can rely on a shipper who does not turn [your package] over until he is paid. We have more ability than a bank to manage this, because we have the package and the ongoing relationship with the customer as collateral, so we have two points of leverage.”

More than sixty companies have moved operations closer to the UPS hub in Louisville since 1997, so they can make things and ship them straight from the hub, without having to warehouse them. But it is not just the little guys who benefit from the better logistics and more efficient supply chains that insourcing can provide. In 2001, Ford Motor Co. turned over its snarled and slow distribution network to UPS, allowing UPS to come deep inside Ford to figure out what its problems were and smooth out its supply chain.

“For years, the bane of most Ford dealers was the auto maker's Rube Goldberg-like system for getting cars from factory to showroom,” BusinessWeek reported in its July 19, 2004, issue. “Cars could take as long as a month to arrive-that is, when they weren't lost along the way. And Ford Motor Co. was not always able to tell its dealers exactly what was coming, or even what was in inventory at the nearest rail yards. 'We'd lose track of whole trainloads of cars,' recalls Jerry Reynolds, owner of Prestige Ford in Garland, Tex. 'It was crazy.'” But after UPS got under Ford's hood, “UPS engineers... redesigned Ford's entire North American delivery network, streamlining everything from the route cars take from the factory to how they're processed at regional sorting hubs”— including pasting bar codes on the windshields of the 4 million cars coming out of Ford's U.S. plants so they could be tracked just like packages. As a result, UPS cut the time it takes autos to arrive at dealer lots by 40 percent, to ten days on average. BusinessWeek reported: “That saves Ford millions in working capital each year and makes it easy for its 6,500 dealers to track down the models most in demand... 'It was the most amazing transformation I had ever seen,' marvels Reynolds. 'My last comment to UPS was: 'Can you get us spare parts like this?'”

UPS maintains a think tank, the Operations Research Division, in Timonium, Maryland, which works on supply-chain algorithms. This “school” of mathematics is called “package flow technology,” and it is designed to constantly match the deployment of UPS trucks, ships, airplanes, and sorting capabilities with that day's flow of packages around the world. “Now we can make changes in our network in hours to adjust to changes in volume,” says UPS CEO Eskew. “How I optimize the total supply chain is the key to the math.” The sixty-person UPS team in Timonium is made up largely of people with engineering and math degrees, including several Ph.D.'s.

UPS also employs its own meteorologists and strategic threat analysts to track which atmospheric or geopolitical thunderstorms it will have to work around on any given day. To further grease its supply chains, UPS is the largest private user of wireless technology in the world, as its drivers alone make over 1 million phone calls a day in the process of picking up and delivering packages through its eighty-eight thousand package cars, vans, tractors, and motorcycles. On any given day, according to UPS, 2 percent of the world's GDP can be found in UPS delivery trucks or package cars. Oh, and did I mention that UPS also has a financing arm-UPS Capital-that will put up the money for the transformation of your supply chain, particularly if you are a small business and don't have the capital.

For example, notes Eskew, UPS was doing business with a small biotech company in Canada that sold blood adhesives, a highly perishable alternative to stitches. The company had a growing market among the major hospital chains, but it had a problem keeping up with demand and could not get financing. It had distribution centers on the East and West coasts. UPS redesigned the company's system based around a refrigerator hub in Dallas and extended it financing through UPS Capital. The result, said Eskew, was less inventory, better cash flow, better customer service-and an embedded customer for UPS. A maker of bridal headpieces and veils in Montreal wanted to improve its flow of business with the U.S. Eskew recalled, “We designed a system for consolidated [customs] clearances, so their veils and headpieces would not have to come over [the border] one by one. And then we put [the merchandise] in a warehouse in [upstate] New York. We took the orders by Internet, we put the labels on, we delivered the packages and collected the money, and we put that money through UPS Capital into their banks electronically so they had the cash back. That allows them to enter new markets and minimize their inventory.”