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UPS slashed the time it takes to determine the least-expensive route from months to days to hours and wants to make that information available in real time

In the mid-1990s, United Parcel Service Inc. decided it needed a software program to map its entire U.S. operations—every pickup and delivery center and every sorting facility, totaling more than 1,500 locations—to find the best routes to move more than 10 million packages and documents daily. But there was a hitch. "It was thought to be impossible to model the UPS network and optimize it," says Jack Levis, project portfolio manager with the company's industrial engineering division.

Impossible because there are 15.5 trillion options for calculating every possible route among just 25 points—a job that would take the fastest computer in existence 500,000 years to compute. So a group of UPS researchers set about creating optimization software that would assess only the most-feasible options and over the years whittled down the time to figure out the least-expensive and shortest U.S. delivery routes from months to just hours today.

Now, almost a decade later, UPS not only uses that homegrown software to help answer questions such as where to put a new distribution center, but it's planning by 2006 to give its 70,000 drivers unprecedented tools to fine-tune the supply chain. If successful, the plan would change supply-chain optimization from today's top-down, management-driven approach to one that's essentially bottom-up, giving more information to the people closest to the customer. UPS is investing $600 million in the initiative, which includes state-of-the-art handhelds and new software and is expected to save the company $600 million annually.

Operations research has become more important to UPS, Levis says (foreground with Mohr on left and other team members).

Photo by David Deal
UPS says it has already reaped numerous payoffs from the millions of dollars it spent on operations research that led it to build the proprietary ground and air supply-chain-optimization technology, including saving hundreds of millions of dollars on its air deliveries. In the next two years, it expects more benefits, by giving drivers access to data from the supply-chain-optimization models in real time via wireless handhelds. That will let them adjust delivery schedules on the fly to deal with everyday problems such as traffic and bad weather.

UPS's efforts are key in a fiercely competitive market. It holds the lion's share of the ground-delivery market, but FedEx Corp., a company about two-thirds the size of UPS with $33.5 billion a year in revenue, leads in overnight deliveries. UPS and FedEx constantly one-up each other in cost-cutting, service improvements, and new business ventures. (For more on FedEx, see Time To Deliver, Jan. 12.)

Also a growing threat to UPS is DHL International Ltd., the leader in cross-border express deliveries. It's making a big play for the U.S. ground-delivery market, acquiring Airborne Inc.'s ground operations last August for about $1.1 billion.

In this ultracompetitive environment, UPS has revised its company charter to cite as its mission "synchronizing global commerce." That means helping customers manage and coordinate the flow of goods, information, and money throughout their supply chains. UPS for years has been using operations research, a discipline that leverages mathematical algorithms to predict and help improve the behavior of complex systems involving people, machines, materials, and procedures. But the company's changing mission, which increasingly encompasses global service across more than 200 countries, has raised the importance of operations research.

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