UPS:SUPPLY CHAIN SOLUTION ,$2BILL A YEAR

[Anonymous]

Logistics unit makes UPS more than a shipper 
Location near airport is key to business

 

As the 100 or so cargo planes that ferry UPS shipments make their nightly descent to Louisville International Airport and the UPS Worldport sorting hub, activity also ramps up a mile away at a different UPS business off Outer Loop.

Repair parts for computer and office equipment are prepared for an overnight hop to points across the nation. Laptop PCs and other electronic devices that arrived that morning for repairs are boxed for a quick return to their owners. In work that stretches throughout the day, digital cameras from Korea, sneakers from China and computer chips from Singapore are introduced to America out of the Louisville campus for UPS Supply Chain Solutions.

About 120,000 shipments a day for 100 corporate customers leave the Supply Chain Solutions warehouses. And while employees there don’t wear the brown outfits of UPS truck drivers or help sort 900,000 air shipments a day like the package handlers at Worldport, the logistics workers represent a growing and increasingly important part of the UPS network.

Supply Chain Solutions generates $2 billion a year in revenue — about 8 percent of UPS’ $33.5 billion take. It allows UPS to be a “single-source provider” for a variety of business services, said Solutions president Bob Stoffel. “We do much more than small package. We want the general public to think of us as a leader in global commerce.”

Logistics is a $2 trillion market worldwide that Supply Chain Solutions has just begun to slice into, said Jerry Kohnke, vice president and general manager for the 12-state, 3,500-employee central district. UPS expects its logistics business to grow 15 percent to 17 percent annually through 2007, he said.

Jennifer C. Ritter, an analyst who covers UPS for Lehman Brothers, said she isn’t as impressed by the profits that Supply Chain Solutions generates as by its strategic significance to UPS.

“It’s still a tiny portion of their business. It’s not where their real business is coming from,” Ritter said. But by cementing relationships with clients through logistic services “it’s not as easy for them to switch to FedEx.”

With its close ties to the UPS flagship sorting hub in Louisville, Supply Chain Solutions has grown quickly. An operation that started in Louisville with a single warehouse in 1996 now encompasses six buildings ranging from 220,000 square feet to 480,000 square feet. There’s also a 400,000-square-foot building in Elizabethtown, Ky., and a 1.4-million-square-foot operation in Hebron, Ky., near the Cincinnati/Northern Kentucky International Airport.

Third-party logistics operations allow companies to farm out functions such as warehousing, distribution, just-in-time delivery, factory repairs, freight, importing and exporting, and other transportation services. A California company, for example, could hand over repairs, storage and distribution of products for its East coast market to UPS, rather than building and staffing an eastern center itself.

UPS doesn’t release employment figures by location, but Louisville is “the largest complex in the global Solutions system,” with more workers handling more shipments than anywhere else, Kohnke said.

About two-thirds of the items leaving the Outer Loop campus travel by air. With “end-of-runway service” and proximity to Worldport, Supply Chain Solutions can send trucks out as late as 2 a.m. with packages that will be delivered that morning.

“That is unheard of anywhere in the country,” Kohnke said. “That’s a big advantage here.” And with truck shipments within a two-day delivery range for much of the country, Louisville is “also a great ground location,” he said.

InFocus, an Oregon company that makes projection equipment, gave its business to UPS last year after realizing “we are not the world’s best at logistics,” Chief Financial Officer Mike Yonker said this month at a technology conference. “We believe by doing this, we are going to be able to gain greater efficiencies and lower our overhead, lower our freight and warrant costs, and at the same time, improve the turnaround time in customer service,” he said.

“We’re more valuable when looking at us with all our capacities,” said Stoffel, Supply Chain Solutions president. “A lot of people can deliver a package. A lot of people can rent a warehouse. A lot of people can deliver ocean freight. We can bring it all together.”

Some of those services pull UPS employees far afield from the traditional package-delivery business. At the Louisville campus, for example, Supply Chain Solutions recently set up a repair center with a staff to fix and refurbish laptop computers for a nationally known computer company. (Like some other UPS clients, the company asks UPS not to release its name.)

The campus work force blends high-skill jobs, such as the computer-repair technicians, inventory analysts and logistics managers, with more traditional warehouse jobs such as unloaders and forklift operators, Stoffel said.

While the Outer Loop site has room for just one more warehouse, that doesn’t necessarily mean an end to Supply Chain Solutions’ growth in Louisville. Warehouses on other nearby sites could easily be incorporated into the operation, Kohnke said.

[Author]

March 7, 2004 at 9:33 AM