The UPS and USPS are in friendly “coopetition” to reduce carbon footprints and improve customer service.
By Grant Ricketts, CEO, Tripos Software
At the recent Sustainable Brands ’13 conference in San Diego, executives from the U.S. Postal Service [USPS] and UPS talked about how they transformed their respective delivery networks to become more profitable, improve customer service and lower emissions, not only for their respective companies but industry-wide as well.
Executives Tom Day, Chief Sustainability Officer for the USPS and Steven Leffin, Senior Director for Global Sustainability at UPS – fierce competitors in the package delivery and logistics market – shared insights as to how they initiated the process and openly work together to leverage key aspects of each organization’s logistics capabilities.
Titled The Paradox of E-commerce: A Quest to Reduce Footprints through Process and Business Model Innovation, the discussion was moderated by Bonnie Nixon, a veteran of tackling complex sustainability issues as a former HP supply chain executive. The panel sought to explore latest trends and conditions to make e-Commerce more efficient, with particular interest in showing how the partnership between USPS and UPS can foster a long-term sustainable delivery process for online retailers.
As seasoned industry executives, Day and Leffin each understood the relative strengths and weaknesses of their respective capabilities as well as the overall industry sustainability imperative. Informal conversation lead to more formal discussions, analyses and proposals which ultimately lead to a formalized agreement and program that became known as “Blue + Brown = Green.”
The SB’13 session opened with a jointly-produced video featuring the USPS Postmaster General and UPS CEO appearing together to promote the use of each other’s competitive capability. That in itself was a sign of the cultural shift that has occurred within each company.
Traditional business thinking frequently considers distribution capability and logistics as sources of competitive advantage. Optimizing capability to deliver faster, better, cheaper is not necessarily something openly shared with others. Competitive instincts, culture and ‘politics’ in organizations are certainly inhibitors, not to mention anti-trust issues to navigate.
But, it’s also where the laws of comparative advantage come in.
Blue + Brown = Green
There are unique capabilities in each organization’s network where it makes economic sense to utilize the strengths of the other. And, with the economic case come numerous opportunities to improve customer service and drastically cut emissions; certainly a ‘win-win-win’ situation in the face of the exponential growth of e-Commerce.
Each panelist described their relative contributions to the program. The USPS literally touches every doorstep in America, with over 153 million delivery points across the country. It also has processing and handling capabilities that excel in small package delivery, which they define as 5 lbs. or less.
Its unique strength is commonly referred to as the “last mile.”
Under this scenario, the incremental cost of an additional pick-up, say, to initiate the return of an e-Commerce package from a residential customer back to an entity like Amazon.com, is miniscule. And, with a postal vehicle delivering, and therefore, emptying most of its load during the day, picking up additional parcels (a practice commonly referred to as “reverse logistics”) contributes to effective utilization of its “cube” capacity.
On the other hand, such widely distributed and relatively random pick-ups by UPS have a much higher associated cost, both in economic and GHG terms. Its strengths are in parcel transportation networks with highly automated distribution hubs that include larger vehicles, rail and airplane use that give it superior routing logistics for large package transport. Operating this network infrastructure represents 17 percent of the company’s total operating costs. So, operating refinements have significant impact on the company’s bottom line and widening e-Commerce delivery points can stress the system.
The Right Tool for the Right Job
It may be efficient for the UPS to pick-up a package from the warehouse distribution center and ship it across its network. But, in some circumstances it might not be fully efficient for UPS to deliver that package the “last mile” to a residential location in areas when it can effectively and efficiently hand-off such a package to the USPS and share a modest portion of revenue.
Likewise, for the UPS to initiate the pick-up and return scenario in some areas may be cost prohibitive, both in economic and GHG terms relative to the USPS’ mobile capability and available cube space.
This is the essence of the collaboration between USPS and UPS.
To utilize one another’s distribution, delivery and pick-up capability – its logistics network – on a shared basis optimizing distribution revenue and expense, while lowering carbon emissions and improving customer service.
Coopetition: Optimizing Revenue, Boosting Efficiency & Customer Service
But, make no mistake about it; both entities compete fiercely for business. And they will be first to underscore that point. In the days of rapidly rising consumer expectations and online retailing promises for rapid delivery and pre-paid return policies, shared network optimization is a triple bottom-line benefit for the entire e-Commerce eco-system.
Returning to the theme of business model transformation, the executives shared how traditional thinking focusing on “time and expense” would prescribe solutions based on paying more for faster service. The addition of delivery “modality” to this equation represents broader “systems thinking” whereby the price to consumers or retailers can remain low while efficiencies are gained by extending the use of the logistics network for each company.
While some sustainability advocates believe collaboration and transparency should be a given, such “co-opetition” is not easy to define. It involves a deep understanding of a complex array of economic and logistical variables as well as being able to share data and mutually understand and confirm the environmental impacts of each other’s actions.
There is incredible IT infrastructure investment to operate these networks; with bar coding systems, routing logistics, load balancing factors, cost optimization algorithms, and many other factors building intelligence into the system.
For example, enhancements to barcoding systems now improve reverse logistics enabling dynamic re-routing in transit to make use of the most available and efficient transportation and routing resource available, which sometimes may include components of the other company’s capability. And collaborating on carbon analysis helps data become reliable so that accurate “carbon-per-package” impacts can be shared and relied upon across the eco-system as well.
Moving the Needle
Both Day of USPS and Leffin of UPS spoke to the difficulty in driving change in large companies with well-established cultures and practices. At the same time, they also stressed the importance for companies to step up and address big challenges because once the needle is moved, the payoff can be that much greater.
Transportation and delivery logistics may not be the prettiest or sexiest part of e-Commerce. But they really are its “heart and soul" to make the entire eco-system a better place to do business and to live.