Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, June 4, 1995 TAG: 9506020039
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: ROBERT FRANK THE WALL STREET JOURNAL
DATELINE: LENGTH: Long
United Parcel Service of America Inc., long known in the delivery industry as the model of efficiency, has begun a wrenching re-engineering to carve out even more fatty layers of management, wasteful procedures and unneeded operations. To do that, UPS has begun a series of tests in Alabama, Wisconsin and California that could lead to a dramatic overhaul of the company, changing everything from the authority of the drivers and customer-service representatives to the company's cost structure.
Already, the 88-year-old Atlanta-based company has announced plans to turn to outside sources to run 65 call centers that employ about 5,000 people. Executives say the company also plans to trim its management ranks by more than 2,000 during the next 18 months through buyouts, attrition and - possibly - its first-ever layoffs. Currently, the company has 35,000 managers and a worldwide work force totaling about 300,000.
(United Parcel Service employs about 630 at its shipping and packaging sorting hub on Thirlane Road in Roanoke.)
``This is probably one of the three or four defining moments for this company,'' says John Alden, the company's senior vice president in charge of business development.
It isn't that Big Brown is in trouble. In fact, with record 1994 earnings of $943 million on revenue of $19.6 billion, UPS still towers over the delivery industry with mountains of capital, strong growth rates and an array of new services. But like a lot of corporate giants staring into the future, UPS has decided that it needs to make sweeping and even painful changes to stay ahead. The company argues that it's better to make those changes during a time of strength than to wait for a crisis.
``They realize that the customer is gaining more and more power,'' says Claes Fornell, chairman of Anjoy QSP, a consulting concern in Ann Arbor, Mich., that is working with UPS. ``Somewhere down the line, that could catch up to them unless they start rethinking the business now,'' Fornell adds.
The goal of the initiative is two-fold: to boost quality and cut costs. UPS's capital and operating costs have raced ahead of its overall growth in recent years as the company swallowed up aircraft and computers, added information and marketing staff and made acquisitions. The shopping spree was all in the name of customer service, but it has started to pinch the bottom line. Since 1988, earnings as a percentage of revenue have dropped to 4.8 percent from 6.9 percent.
What's more, the company is having an increasingly tough time passing on the cost increases to customers because of bitter competition from Roadway Package System and Federal Express Corp. UPS's 1994 rate increases of 4 percent, for instance, drew fierce criticism from customers. ``A lot of our most valued customers came down on us,'' says a spokesman.
To offset the costs, UPS has launched a ``clean-slate'' review of its entire operation. In Alabama, for instance, the company is testing a model that gives more authority to drivers - a big shift for an institution that instructs employees on how fast to walk and how to hold their keys. Rather than have managers or computers tell the drivers which packages to deliver first and when, the drivers design their own routes. The new system has eliminated several layers of management and improved quality by speeding up deliveries.
``It took us a while to accept,'' says James P. Kelly, the company's chief operating officer, ``but we realize that our people know their job best and don't need close management.''
Another area ripe for change is customer service. UPS is testing several models that give customer-service representatives more resources so that they can make their own decisions for customers. For instance, if a package is lost, customers currently have to call a service representative, who calls the operating center, which calls another office, which calls the driver, who then has to try and retrieve the package and send the answer back through the same channels.
``It's a nightmare,'' says Alden. The company's new call centers would allow the service reps to contact the driver directly and get a quick answer for the customer.
UPS is also taking a hard look at its legendary measurement practices, which include everything from timing drivers and stoplights to measuring sorting-hub efficiency and package mishaps. Executives say that while some measuring is needed to maintain efficiency, the company probably will eliminate many of the hulking daily reports from the industrial engineering department that are no longer useful.
Of course, the changes have encountered opposition from both management and field workers. While the company says cost-cutting and quality-improvement go hand in hand, some managers worry that service will suffer. For instance, many question the wisdom of placing customer-service functions in the hands of an outside company.
Even UPS's proud policy of washing each of its brown package trucks every day has been scaled back to cut costs. Now, the vehicles are washed ``when needed,'' and drivers say they already have received comments from customers about dirt or dust on the trucks.
The International Brotherhood of Teamsters, which represents more than 170,000 of the company's drivers and sorters, is also putting up a struggle. The union recently filed an unfair-labor-practice charge against the company, saying many of the changes threaten to place hourly workers in charge of more senior employees and have to be negotiated with the union. Teamsters officials also contend that the move is part of a broader corporate effort to oust the union.
``It's fine to say they're going to give us more authority,'' says Mario Perrucci, vice president of the Teamsters, ``but not when it's done outside the bargaining agreement.''
UPS says the gripes are expected, especially from longtime managers who stand to lose their jobs. And at UPS, where the managers own the company and remain deeply loyal, such shakeouts are even more difficult. ``This is one of the most discomforting things this company has ever had to do,'' says Alden. ``We're all very close.''
As for the union, UPS says it is giving workers what they've wanted for decades - more freedom and responsibility. ``We just hope they'll come on board and help this company remain successful,'' Kelly says.
by CNB