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UPS versus FedEx: Two Competitors, Two Wireless Strategies
FedEx Corporation (FedEx) and
United Parcel Service, Incorporated
(UPS) are industry leaders in air and
ground package distribution and spe-
cialized transportation and logistics
services. The companies compete on
a global scale and have established
strongholds on particular aspects of
the shipping business. UPS achieved
its status primarily on the strength of
its time-definite ground delivery of
packages and documents. FedEx tra-
ditionally attributes its success and
reputation to its unmatched perfor-
mance in overnight deliveries. UPS
delivers an average of over 13 million
packages each day. FedEx averages
approximately 5 million daily deliver-
ies, but surpasses UPS in air deliver-
ies, 3.1 million to 2 million. The two
rivals have grown out of very different
beginnings to occupy their current
standings in the marketplace. As tech-
nological advances enable UPS and
FedEx to carry their respective busi-
nesses to greater heights, the evolu-
tion of the technology has them walk-
ing a fine line between fanning the
flames of competition and growing
side by side.
Nearly a century old, UPS has
grown from a two-man, two-bicycle
operation in Seattle that promised
the best service and lowest rates
into a 355,000-employee corporate
giant with a delivery fleet of 88,000
ground vehicles and nearly 600 air-
planes. The fleet services 1.8 million
shipping customers daily, bringing
deliveries to 6.1 million consignees.
UPS first expanded to Europe in 1975.
In 2003, UPS revealed a $600 million
improvement initiative for its package
sorting and delivery systems. By 2007,
UPS expects this initiative to result in
a $600 million annual reduction in
operating costs, mostly as a result of
productivity improvements and more
efficient driving routes.
UPS counts global reach, tech-
nology systems, customer relation-
ships, brand equity, and e-commerce
capabilities among its competitive
strengths. The companys growth
CASE STU DY
strategies include building on its sta-
tus as the leader in domestic package
operations, continuing to expand
internationally, offering comprehen-
sive supply chain solutions to busi-
nesses that seek to outsource such a
complicated business component, and
backing up the core delivery service
with a strong portfolio of e-commerce
solutions. UPS.com fields more than
9 million requests for package tracking
each day, and the Web site receives
115 million daily hits overall.
FedEx Corporation is the parent
company of the various operating
companies under the FedEx name,
which include FedEx Express, FedEx
Ground, FedEx Freight, FedEx Trade
Networks, and FedEx Services. FedEx
Express, the corporations time-certain
express delivery service, was founded
in 1971. The corporation as a whole
employs 216,500 workers and con-
tractors, and 134,000 of those
employees serve FedEx Express as it
provides delivery services to 214
countries using 53,500 drop-off loca-
tions, 643 aircraft, and 48,000 road
vehicles. FedEx Ground recently
began a six-year, $1.8 billion expan-
sion initiative that by 2009 will dou-
ble the companys capacity to process
ground packages, currently at 2.5 mil-
lion daily.
The growth strategies of FedEx
include increasing high-tech and high-
value-added business goods, global-
ization, acceleration of the supply
chain, and continued expansion of
Internet and e-commerce solutions.
The corporation views its brand as a
strong business asset and uses it to
provide customers with an integrated
set of business solutions, including
those available from FedEx.com.
As UPS and FedEx continue to
jockey for position in each others
strongest market domains, it is clear
that the two companies take differ-
ent approaches to the same goal.
Both, like any company that is seek-
ing to grow, look to increase the effi-
ciency of their operations. Improved
efficiency generally results from cut-
Chapter 9 The Wireless Revolution 337
ting costs of business processes and
extending the usefulness and capa-
bilities of resources beyond current
expectations. One of the most im-
portant ways that UPS and FedEx
have improved their businesses
since the late 1980s is through the
use of wireless technologies. The
companies take on contrasting per-
sonalities in their implementations
of such technologies.
FedEx acts more like a startup busi-
ness, jumping at the chance to adopt
the latest and greatest applications as
soon as they prove to be economical
and effective for both the company
and its customers. UPS, on the other
hand, adheres to a more measured
schedule of new technology rollouts,
generally waiting from 5 to 7 years
between major initiatives. This
approach enables UPS to revamp its
systems with uniform upgrades that
can replace segments of the old sys-
tems in phases.
Their approaches, however, are not
diametrically opposite. UPS is willing
to make intermediate technology
changes to take advantage of oppor-
tunities, whereas Fed Ex tries to
makes sure its adoptions have long-
term viability and support its critical
priorities. And regardless of approach,
FedEx and UPS have determined that
wireless technologies have a major
impact on their key business
processes, especially package pickup
and delivery transactions and the
physical packaging and sorting of
packages.
Fifteen years ago, deploying wire-
less technology generally required
contracting with a technology vendor
to develop proprietary systems. Such
systems were costly because they had
to be developed from the ground up
and neither company had the existing
infrastructure or bandwidth to sup-
port wireless technology at the outset.
These days, UPS and FedEx have
taken advantage of wireless solutions
based on global standards. Both com-
panies use the Bluetooth short-range
wireless specification, 802.11b wireless
LAUDMC09_0131538411.QXD 2/3/05 1:39 PM
338 Part Two Information Technology Infrastructure
LANs, and general packet radio ser-
vice (GPRS) cellular networks to vary-
ing degrees. The fact that these tech-
nologies are available off the shelf
translates to greatly reduced develop-
ment costs, easier maintenance, bet-
ter capacity and security, and lower
implementation costs.
For companies such as FedEx and
UPS, reducing the time required to
make every delivery by even one sec-
ond can have an enormous impact on
the cost of doing business across the
board. Wireless technology has
become the driving force behind
making such improvements in effi-
ciency possible. Not surprisingly, both
companies have devoted sums in
excess of $100 million to wireless ini-
tiatives. Wireless technology brings
UPS and FedEx as close as they can
come to having real-time data avail-
able for their operations. Putting wire-
less handheld devices in the hands of
delivery personnel enables these
workers to complete their tasks more
quickly and provide an elevated level
of customer service.
At UPS, drivers carry a handheld
unit called a Delivery Information
Acquisition Device (DIAD). The cur-
rent version of the device is the DIAD
IV, which, like its predecessor, the
DIAD III, can connect to UPS opera-
tions centers directly using cellular
transmitters in the delivery trucks.
Therefore, information from pickup
and delivery transactions that is gath-
ered by personnel in the field can be
transmitted to the companys global
network almost immediately.
UPS plans to augment the power
of its handheld units by adding
Bluetooth capabilities to them. The
upgrade will enable the devices to
connect the handhelds to the trucks
and to run applications, such as credit
card transaction processing, in areas
where an adequate GPRS cellular sig-
nal is not available. John Killeen, the
director of global network services for
UPS, admits that the full scope of
Bluetooths usefulness to the new
DIADs is not apparent yet, but the
reasonable cost and potential of the
implementation make it worthwhile.
UPS is also looking to improve cus-
tomer service by adding Global
Positioning System (GPS) tracking
Page 338
technology to the DIAD IV units. This
type of tracking would facilitate ser-
vices such as rerouting packages that
are already in transit by the most eco-
nomical route.
The FedEx equivalent of UPSs
DIAD is the PowerPad. Like their
counterparts at UPS, FedEx drivers
use the handheld PowerPad to scan
packages for pickup and delivery
information. The method that FedEx
uses to transmit these data to head-
quarters differs slightly, however.
FedEx had previously equipped its
vehicles with cellular transmitters for
this purpose. When the company
rolled out the PowerPad handhelds, it
decided to keep the cellular transmit-
ters and have the handhelds upload
their data to the transmitters using
Bluetooth. Because drivers previously
had to dock their handheld units
physically in the transmitters to trans-
mit data to home base, the PowerPad
with Bluetooth still provides FedEx
with significant time and cost savings
($20 million per year) even though it
does not provide a direct connection
to the companys central systems.
The PowerPad units have other
time-saving features as well. For
example, FedEx drivers can lock and
unlock drop boxes using an infrared
signal from the PowerPad instead of a
key. Because infrared signals require
that the communicating devices line
up to each others apertures unim-
peded, FedEx would like to improve
this time-saving measure further by
using a Bluetooth signal instead of
the infrared signal. First, FedEx must
address issues related to how much it
would cost to deploy and maintain
Bluetooth in the drop boxes. Taking
the technology another step further,
FedEx hopes that using Bluetooth in
its drop boxes will eventually permit
drivers to pass by empty drop boxes
without having to check them.
Again, there are technology chal-
lenges to overcome: a drop box could
be silent because it is empty or
because the battery in its Bluetooth
transmitter is dead. Other plans for
the future of the PowerPad include
making it 802.11b-enabled to main-
tain compatibility with Microsoft oper-
ating systems and adding information
look-up and retrieval features so that
delivery personnel can provide cus-
tomers with better and more detailed
information on topics such as packag-
ing rules and regulations, supplies,
and rates.
FedEx and UPS are also seeing the
benefits of wireless technology in
their sorting facilities and distribution
centers. The main hubs for FedEx, in
Memphis, Tennessee, and UPS, in
Louisville, Kentucky, are huge facilities
that process millions of packages
every day. For both companies, lower-
ing the cost of sorting these packages
at their main hubs and smaller cen-
ters is an important business consid-
eration. To collect package data dur-
ing sorting, UPS and FedEx both use a
portable ring scanner, which consists
of a finger-mounted bar code reader
that is connected to a terminal. The
user wears the terminal on his or her
forearm.
UPS will soon complete the rollout
of a new scanning unit that places the
terminal on the users waist.
Employees prefer this location
because it results in less physical
stress over the course of a workday.
Additionally, the new scanners will
use Bluetooth for communication
between the finger-mounted bar code
scanner and the waist-mounted ter-
minal. Workers at UPS sorting facili-
ties scan packages as they load them
onto trucks. It was not unusual for the
cables connecting the two pieces of
the old scanners to get caught and
break during the loading process. The
new scanners will reduce UPS main-
tenance costs by 30 percent, spare
parts costs by 35 percent, and down-
time by 35 percent. Also, once turned
on, the scanners are in an always-on
mode and do not have to be triggered
for each bar code read, as the old ring
scanners did. The scanners can also
transmit data to the company system
in real time, so UPS inventory systems
can flag issues and report more
quickly to customers. (The old sys-
tems stored the data and transmitted
them in periodic batches.) During the
next four years, 55,000 scanners will
be rolled out to about 1,700 facilities.
FedEx has not yet found the need
to replace its current ring scanner
model. Despite the companys inter-
est in increasing its volume of ground
LAUDMC09_0131538411.QXD 2/3/05 1:39 PM Page 339
package shipping, smaller packages
such as envelopes still account for the
majority of the business. Therefore,
FedEx requires fewer people to han-
dle boxes, uses fewer ring scanners
than UPS, and is not adversely
affected by the costs associated with
the equipment. FedEx also has found
a problem with implementing
Bluetooth because its signals interfere
with the operation of the 802.11b
network that the company installed
only three years ago. UPS avoided this
problem by upgrading its new scan-
ning system all at once and designing
devices and access points to use
time-division multiplexing to alternate
between 802.11b and Bluetooth so
that signals dont conflict.
Other wireless technology areas
that UPS and FedEx are considering
include radio frequency identification
(RFID) and Global Positioning System
(GPS) applications. RFID tags would
replace bar code scanning entirely,
whereas GPS would enable precise
tracking of drivers, vehicles, and
packages in the field. Even though
several industries have begun using
RFID for shipping and supply chain
management, for now, it remains
cost-prohibitive for such companies
as UPS and FedEx. They have many
customers who operate on small
budgets. Although having these cus-
tomers print their own bar codes is
quite reasonable, asking them to
create RFID tags requires a much
heavier investment. However, accord-
ing to Winn Stephenson, FedEx
Services senior vice president of IT
for technology services, adoption of
RFID seems inevitable; its just a
matter of timing.
One significant challenge that
remains for UPS and FedEx is design-
ing applications that conform to the
narrower bandwidth that is character-
istic of wireless networks and that
provide fault tolerance for discon-
nects. Despite these issues, both
companies would insist that the
dynamic transfer of data that wireless
connectivity provides has them poised
to continue as industry leaders.
Sources: Galen Gruman, UPS vs. FedEx:
Head-to-Head on Wireless and New
Technologies Hit Mainstream, CIO
Magazine, June 1, 2004; RFID Adoption
Survey: Current and Future Plans, CIO
Chapter 9 The Wireless Revolution 339
Magazine, June 30, 2004; Dean Foust, Big
Browns New Bag, Business Week, July 19,
2004; Robert Carter, Six Degrees of
Preparation, Optimize Magazine 22 (January
2004); Mark Samuels, UPS Wireless Plan
Reaches Europe, VNU, www.vnunet.com,
June 30, 2004; United Parcel Service, Inc., 10-
K Report, www.ups.com; FedEx Corporation
10-K Report, www.fedex.com.
CASE STUDY QUESTIONS
1. Analyze UPS and FedEx using the
competitive forces and value chain
models.
2. How are wireless technologies
related to the core information sys-
tems and business strategies of
UPS and FedEx? How do these
technologies provide value to these
companies?
3. How do the implementations of
wireless technology reflect the
organizational differences between
UPS and FedEx? Which wireless
strategy is more effective? Explain
your answer.
4. How will wireless technologies
help UPS and FedEx in the future?