Signed, Sealed and Delivered

FedEx and UPS have pushed the technology envelope with an obsession with information and a fierce game of one-upmanship.

"Information about the package will soon be just as important as the delivery of that package."

On any list of insightful statements about the impact of technology during the past 35 years, that one belongs near the top. FedEx Corp. founder and CEO Frederick W. Smith made that statement in 1979, succinctly predicting the next quarter-century of IT innovation. The statement has become so totemic that it's repeated - in generic form, to be sure, with no credit given to its original utterer -- in the corporate literature of rival United Parcel Service Inc.

The competition between Memphis-based FedEx and Atlanta-based UPS is gentlemanly compared with other famous rivalries (Ford and GM, or Coke and Pepsi, for example) but fierce nonetheless. And due to the straightforward nature of putting a box on a truck or a plane and making sure it gets where it's supposed to go, that competition has come to revolve around information -- which, in turn, has led to an enviable record of IT innovation by both companies.

This innovation has led to advances in other industries as well. For example, the shipping giants' obsession with information about packages has been extended to manufacturing, where supply chain data has become more granular than ever. And in 1996, UPS and FedEx each vowed to move their businesses to the Web -- a promise that they've largely kept.

Such innovation guarantees that the shipping companies' IT organizations are closely watched by other industries, according to Jeff Woods, an analyst at Stamford, Conn.-based Gartner Inc. "These are best-practice leaders," he says. "These are the companies showing CIOs where we're going next."

The Early Seeds of Innovation

FedEx's origins as a maverick company are well known. It has entered 20th century business lore that while attending Yale University in the 1960s, Smith wrote up his overnight-delivery concept in a paper and received a C grade. Despite the lukewarm reception to his idea, Smith forged ahead, founding FedEx in 1971.

In 1978, the company put voice-only radios in its trucks. Two years later, FedEx launched a proprietary and then-revolutionary wireless data network called Digitally Assisted Dispatch System (DADS).

The system increased efficiency by eliminating radio chatter; dispatchers were now able to use text messages to change drivers' routes and pickup requests. DADS, which is still in use, led to a 30% increase in couriers' productivity -- the first day it was used.

DADS has always been a private network, but that's changing. Winn Stephenson, senior vice president of technology systems at FedEx Services, says that in the U.S., FedEx is moving toward a hybrid network that uses public General Packet Radio Services (GPRS) technology in metropolitan areas and a private network structure in rural and remote ones. The reason, Stephenson says, is that GPRS is reasonably priced and offers the capabilities FedEx needs.

In 1986, the company adopted its present generation of wireless handhelds, called SuperTrackers. These devices capture package data via a bar-code scan. When couriers return to their trucks, they insert the SuperTracker in their DADS unit, and the information is downloaded to the company's proprietary package-tracking system, the Customer Oriented Service and Management Operating System, or COSMOS.

FedEx's technology leadership stems in part from the fact that it has always offered incentives to employees for innovation. "Smith offers payments up to $25,000 for suggestions to improve productivity," says Howard Rothman, author of 50 Companies that Changed the World (Career Press, 2001) in which FedEx is profiled.

For example, in 1989, when FedEx bought out international shipping company Flying Tigers, a Flying Tigers pilot who doubled as a programmer wrote software that allowed the human resources department to merge the seniority profiles of pilots from both outfits. The pilot/programmer was rewarded handsomely, and the software is still in use.

Urged on by Smith, FedEx has been an early adopter -- and, in many cases, a pioneer -- of technologies such as videoconferencing, wireless connectivity and bar codes.

But companies that value innovation must put up with its bucktoothed cousin: failure.

Laurie A. Tucker has been at FedEx since 1979 in a host of positions and is now senior vice president of global marketing. She recalls a 1996 effort that never took off: a Web publishing operation. It was intended to help enterprises set up Web sites using FedEx-designed templates. It didn't have a prayer. "People wondered what this transportation company was doing in the publishing business," Tucker says. "But nobody got fired for that. We don't punish people for taking risks."

Two Roads to Success

Because of FedEx's impressive and well-publicized record on IT innovation, it's tempting to think of 94-year-old UPS as a plodder that tries hard but always lags by a step. "UPS is a much more structured environment," says Gerald McNerney, a senior analyst at Boston-based AMR Research Inc. "A lot of the [top executives] there came out of the military, and that shows."

Even UPS CIO Ken Lacy concedes that the company's approach to IT is "very methodical," in keeping with its button-down management style. "That's just how we approach governance," he says. However, analysts say UPS has played an excellent game of catch-up and pulled even with its rival, which is no mean feat.

In contrast with FedEx's freewheeling, let's-give-it-a-shot style, UPS has four standing IT committees devoted to finance, governance, strategy and new technologies. The committees are composed of business executives and technologists who report to Lacy and steer UPS's efforts.

That may seem unwieldy, but analysts say the system has allowed UPS to spend not just massively -- "We've invested $14 billion-plus since the mid-1980s to build integrated global networks," Lacy says -- but also wisely, never decoupling its IT spending from business goals.

In 1990, UPS introduced its own handheld, called the Delivery Information Acquisition Device (DIAD). The devices are still in use, having been upgraded several times. In its present incarnation, the DIAD both captures and transmits delivery data in real time (UPS is happy to point out that it beat FedEx to the punch on this feature), serves as a cell phone and has a host of new ease-of-use and maintainability features. Today's DIAD runs on PSOS, an embedded operating system; however, the next-generation devices will be based on Windows CE.

UPS also offers an innovative set of application programming interfaces that let companies create their own hooks into functions such as package and signature tracking. Called UPS OnLine Tools, they act as the server side of an Internet client/server application. Customers can set their e-commerce applications to act as clients to the UPS OnLine Tools while simultaneously acting as a server to end users' browsers. Analysts say the platform-independent tools offer convenience, as well as a virtual lock-in to UPS services.

Next Up: Wireless and Outsourcing

And what of the future? With the two shipping giants "growing more and more alike in corporate culture," says Gartner's Woods, it's no surprise that both are rolling out new wireless devices for their couriers. FedEx CIO Robert B. Carter becomes animated when discussing his company's tool, called PowerPad. It will use Bluetooth technology to automate some repetitive tasks and work on 2.5G and 3G wireless networks.

Carter says the company's other IT focus for the near future is "better integrating systems across divisions." In addition to its trademark FedEx Express service, the company is a large player in ground, palletized-freight and international shipping. Carter's goal is to funnel package data from all these operations into one transparent system.

"Our customers need seamless information," Carter says. Thus, FedEx is working on a project to offer customers online tracking data at Fedex.com, whether the shipment is an overnight letter to Chicago or an airplane full of car parts in Milan.

UPS, too, is upgrading its handhelds. The company is also focusing on automating processes at its sorting facilities in an effort to reduce training costs. And like its competitor, UPS is leveraging its IT expertise to become a logistics outsourcer.

With both FedEx and UPS consistently hailed as best-practice and innovation leaders, the evolution seems like a natural.

Ulfelder is a freelance technology and business writer in Southboro, Mass. Contact him at sulfelder@yahoo.com.

Copyright © 2002 IDG Communications, Inc.

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