January 22, 2001

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FedEx And UPS Lead The Logistics Pack

By Norbert Turek

o understand what's involved in running a high-tech global logistics operation, you might want to take a look at shipping giants Federal Express Corp. and United Parcel Service Inc. For the past several years, the two have put massive efforts into their outsourced logistics operations. That much work isn't cheap: Each company spends an estimated $1 billion to $1.5 billion a year on technology development and acquisitions to strengthen the underpinnings of their global IT infrastructures, including logistics operations.

For UPS Logistics Group, it's not simply about loading up the brown trucks with packages and delivering the goods, says CEO Dan DiMaggio, a career UPS employee who helped form the logistics unit in 1995. The group built a complex supply chain that tracks clients' goods as they move through the shipping process. "Our supply-chain systems are customer-oriented and collaborative," DiMaggio says. To provide custom logistics offerings for its clients, UPS Logistics uses its own homegrown supply-chain software and also leverages third-party shipping, warehouse, materials management, and resource planning software from CTS Technologies, EXE Technologies, i2 Technologies, Oracle, and others. It will also integrate its systems with those of other carrier networks so customers can have greater visibility into their entire logistics chain.

FedEx, meanwhile, has developed a supply chain that uses a combination of custom and packaged software for order management, transportation management, and warehouse management, according to Douglas Witt, VP and general manager of FedEx eLogistics. Witt won't specify, but FedEx probably uses global trade-management software from Nextlinx Corp. and Global Logistics Technologies Inc., an E-logistics company FedEx invested in 18 months ago, says Adrian Gonzalez, a senior analyst at ARC Advisory Group.

In the past year or so, FedEx and UPS have turned their attention to the online world and are adding out-of-the-box logistics and fulfillment services tailored to the needs of E-retailers and business-to-business vendors. The two companies want to gain more traction by offering integrated Web-to-doorstep services. "Online fulfillment is potentially hugely disruptive, even to a traditional retail business," says Darren Bien, an analyst at Jupiter Media Metrix.

Witt says FedEx's eLogistics business is designed for companies whose annual sales average $100 million or more, or for Web divisions of larger companies. It includes Web-site development, order fulfillment, transportation, order management, and management of the return cycle, or so-called reverse logistics. Witt says the modular nature of the services lets FedEx eLogistics develop an E-commerce site that's ready to run within 60 days. "The customer is often the determining factor in how fast we can get started," he says.

FedEx eLogistics will sell its software as individual applications. "FedEx is as much a technology company as a shipping company," Gonzalez says. UPS

e-Logistics' software and fulfillment services, however, are available only as packaged offerings. General manager Harvey Rickles says UPS e-Logistics was created to serve companies that ship anywhere from 50 to several thousand orders a day. "At about $500 million in sales, companies are starting to look for customized approaches," he says.

Jupiter's Bien says both companies are particularly interested in the flow of goods generated by business-to-business exchanges. UPS e-Logistics' original model was the business-to-business market, Rickles says. "We're doing 60/40 business-to-consumer vs. business-to-business right now, but we expect that to flip," he says.

UPS Logistics handles all bulk pickups from the electronics component vendors that sell their wares on iSuppli Corp., an online purchase aggregator in the electronics industry. Shipments are sent to UPS cross-dock facilities, where they're divided and sent to individual purchasers. Thanks to UPS Logistics' integrated web of IT systems, all the parties involved can view up-to-the-minute shipping orders at any point in the process.

Integrating shipping processes into an exchange should cut the time it takes to begin transporting goods once they've been sold. "Up to this point, many exchanges have been virtually dating services," Bien says. After the initial deal, a buyer and seller typically have to go offline to negotiate the logistics. And once they leave, they might not return. Value-added logistics services could keep participants coming back to do business on the exchange, Bien adds.

Going forward, the technology, global partnerships for customs and shipping, and customer lists of both companies will continue to expand. For example, UPS Logistics continues to fine-tune its service parts delivery offerings and has already cut the time from 30 to 60 days to as little as a week for many components, DiMaggio says. The company has also created Autogistics with Ford Motor Co. to accelerate and track delivery of finished vehicles across the dealer, and eventually consumer, network. FedEx's Witt says his eLogistics division has software components or services installed at more than 100 businesses, and FedEx eLogistics has "at least as many" Fortune 1,000 clients.

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