UPS tries to make bigger deliveries in fewer drops

UPS will endeavour to deliver more parcels at the same time to reduce the amount of deliveries it makes to the same address, thereby reducing costs.

A pilot is going live in the next financial quarter where an unnamed third party technology company will hold an order on an order management system until it can match another shipment headed for the same address.“The virtual hold is only as long as the service level agreement allows, but there’s a lot of hours in that service level agreement — nine hours, 12 hours,” UPS CEO Carol Tomé said. She added that one customer is participating in the pilot programme but, “We’ve got nine other customers lined up who are anxious to talk to us about this,” she added.

The average cost of a last mile delivery to UPS is USD $5.50 but additional packages sent to the same address cost just 60 cents. This suggests that where it can wait for another package to deliver at the same time, the logistics company can reduce its costs by a factor of 10 for the additional parcels.

“Imagine the value that can be released if we improve the density,” Tomé said. “So we’re going to give some of that value back to our customers.”

Higher delivery density has been a goal of UPS for many years. It has however tried to tackle the issue downstream as opposed to upstream when the order is made. This has included pick-up/drop-off (PUDO) points. Such efforts haven’t been so successful in its US deliveries.

 
“So we’re like, ‘All right, what we’re doing isn’t working. We’ve got to go upstream,’” she said. “And when I mean upstream, when you think about e-commerce retailers, their upstream supply chain is from the manufacturer to their warehouse or store. Their upstream supply chain is also their order management system.”

The move is part of UPS’s ‘better not bigger’ philosophy of driving greater revenues from smaller volumes. This has been exemplified in higher revenues from a drop in volumes of more than 4% in the latest earnings call.

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