第 24 页

let's cut out all the middle steps. We, UPS, will pick it up, repair it ourselves,

and send it right back to your customer." It is now possible to send your Toshiba

laptop in one day, get it repaired the next, and have it back the third day. The UPS

repairmen and -women were all certified by Toshiba, and its customer complaints went

down dramatically.

packages delivered or goods repaired quickly anywhere in the world, you can act really

small.

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 itsbusiness

and then into its suppliers' businesses-what boxes and packing materials they were

using. That is insourcing.

146

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

147

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 ofpicking 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."

Eskew explained, "When our grandfathers owned shops, inventory was what was in the

back room. Now it is a box two hours away on a package car, or it might be hundreds

more crossing the country by rail or jet, and you have thousands more crossing the

ocean. And because we all have visibility into that supply chain, we can coordinate

all those modes of transportation."

Indeed, as consumers have become more empowered to pull their own products via the

Internet and customize them for themselves, UPS has found itself in the interesting

position of being not only the company actually taking the orders but also, as the

delivery service, the one handingthe goodsto the buyer at the front door. As a result,

companies said, "Let's try to push as many differentiating things to the end of the

supply chain, rather than the beginning." And because UPS was the last link in the

supply chain before these goods were loaded onto planes, trains, and

trucks, it took over many of these functions, creating a whole new business called

End of Runway Services. The day I visited Louisville, two young UPS women were putting

together Nikon cameras, with special memory cards and leather cases, which some store

had offered as a weekend special. They were even putting them in special boxes just

for that store. By taking over this function, UPS gives companies more options to

customize products at the last minute.

UPS has also taken full advantage of the Netscape and work flow flat-teners. Before

1995, all tracking and tracing of UPS packages for customers was done through a call

center. You called a UPS 800 number and asked an operator where your package was.

During the week before Christmas, UPS operators were fielding six hundred thousand

calls on the peak days. Each one of those calls cost UPS $2.10 to handle. Then, through

the 1990s, as more and more UPS customers became empowered and comfortable with the

Internet, and as its own tracking and tracing system improved with advances in

wireless technology, UPS invited its customers to track packages themselves over the

Internet, at a cost to UPS of between 5(2 and 100 a query.

"So we dramatically reduced our service costs and increased service," said UPS vice

president Ken Sternad, especially since UPS now pulls in 7 million tracking requests

on an average day and a staggering 12 million on peak days. At the same time, its

drivers also became more empowered with their DIADs -driver delivery information

acquisition devices. These are the brown electronic clipboards that you always see

the UPS drivers carrying around. The latest generation of them tells each driver where

in his truck to load each package-exactly what position on the shelf. It also tells

him where his next stop is, and if he goes to the wrong address, the GPS system built

into the DIAD won't allow him to deliver the package. It also allows Mom to go online

and find out when the driver will be in her neighborhood dropping off her package.

Insourcing is distinct from supply-chaining because it goes well beyond supply-chain

management. Because it is third-party-managed logistics, it requires a much more

intimate and extensive kind of collaboration among UPS and its clients and its

clients' clients. In many cases today, UPS and its employees are so deep inside their

clients' infrastruc

150

ture that it is almost impossible to determine where one stops and the other starts.

The UPS people are not just synchronizing your packages-they are synchronizing your

whole company and its interaction with both customers and suppliers.

"This is no longer a vendor-customer relationship," said Eskew. "We answer your phones,

we talk to your customers, we house your inventory, and we tell you what sells and

doesn't sell. We have access to your information and you have to trust us. We manage

competitors, and the only way for this to work, as our founders told Gimbel's and

Macy's, is 'trust us.' I won't violate that. Because we are asking people to let go

of part of their business, and that really requires trust."

UPS is creating enabling platforms for anyone to take his or her business global or

to vastly improve the efficiency of his or her global supply chain. It is a totally

new business, but UPS is convinced it has an almost limitless upside. Time will tell.

Though margins are still thin in this kind of work, in 2003 alone insourcing pulled

in $2.4 billion in revenues for UPS. My gut tells me the folks in the funny brown

shorts and funny brown trucks are on to something big-something made possible only

by the flattening of the world and something that is going to flatten it a lot more.

Flattener #9 In-forming

Google, Yahoo!, MSN Web Search

My friend and I met a guy at a restaurant. My friend was very taken with him, but

I was suspiciously curious about this guy. After a few minutes of Googling, I found

out that he was arrested for felony assault. Although I was once again disappointed