UPS and retailers ready to deliver Christmas
Every holiday season is filled with uncertainty, and this year is no different, except when it comes to e-commerce, where the only unknown is the size of the sales increase.
One indication that retailers can count on double-digit growth this year — even as they are challenged to drive store traffic — is the extensive preparations that have been underway at UPS for the past year. The global logistics leader has invested $500 million this year on a range of initiatives to increase forecasting, capacity, visibility and communications during the peak holiday season and beyond, explained Mark Wallace, UPS VP of engineering for U.S. domestic operations. The company also plans to hire between 90,000 and 95,000 temporary workers for the October through January time frame to cope with the surge in e-commerce-related volume.
“We are ready to deliver, and we have been working on our peak [season] plans since Dec. 26,” Wallace said. “We really feel very confident that we are ready for peak with all the performance initiatives we have in place.”
Peak season is between Thanksgiving and Christmas, when roughly 74% of e-commerce sales occur. Shoppers’ elevated expectations regarding the shipping speed, cost and supply chain visibility have created new challenges and opportunities to delight — and disappoint — customers. To ensure it is not the latter, UPS is placing a tremendous emphasis on collaboration and commitment. Planning for peak [season] goes on all year, but the e-commerce landscape is changing so rapidly that Wallace conceded that even its “largest retail customers are having a hard time forecasting.”
To address the situation, UPS is meeting earlier with its customers than it ever has, and is holding monthly and weekly forecast meetings to understand such variables as the growth of ship-from-store capabilities — which influence distribution patterns — and the mix of ground and air volume. According to UPS, it now has more than 70 retail customers offering ship-from-store services at more than 20,000 locations, some of which may ship as many as 400 packages daily.
The extensive forecasting process also is about reaching mutual volume commitments so UPS can understand how much volume its network is likely to see during peak season.
After shoppers procrastinated and retailers made promises about delivery cutoff times — causing a spike in demand — the UPS logistics network couldn’t accommodate last year, which in turn caused some packages to arrive after Christmas. The potential for that situation to repeat itself is greatly diminished by increased collaboration with retailers and agreements around mutual volume commitments.
For its part, UPS is able to commit to handling increased package volume this year due to a wide range of initiatives that increase capacity by 10%. For example, one of the most obvious ways to do that is with more delivery vehicles, and UPS has said it will add 6,000 drivers this peak season. The company also is increasing the use of contract carriers and in some cases equipping vehicles with technology. The goal is to improve visibility on trailers arriving at distribution centers and enhance communications with drivers. In addition to more drivers, those drivers will be operating more efficiently due to a new route optimization technology rolling out to the fleet called on road integrated optimization and navigation, or ORION. “Forty-five percent of our drivers will be on ORION this peak, and it is a big deal because it makes them more efficient,” Wallace said.
One of the most interesting capacity initiatives involves the use of mobile distribution center villages. The MDCs can be thought of as pop-up distribution centers. Long sections of large trailers are shipped via rail to a destination and linked together in a “U” shape. Merchandise can be received at the base of the “U” and then flows along conveyors through either side of the “U” where UPS trucks can be loaded.
According to Wallace, the MDCs take only a few weeks to set up and give UPS flexible capacity to serve between 60 and 90 delivery vehicles. “The MDCs will provide us with flexibility that we haven’t had in the past,” Wallace said.
UPS also is increasing the capacity of an already massive facility in Louisville, Ky., known as Worldport. The 5.2 million-sq.-ft. distribution facility handles next-day air shipments, and each night beginning around 11 p.m. roughly 110 planes begin arriving from throughout the United States and the world.
The planes are unloaded and then merchandise is processed by 6,000 employees before going on a roughly 13-minute ride throughout the facility’s highly automated sortation system, which includes 150 miles of conveyor belts. The packages are loaded into containers and go back on aircraft, which then depart about every 60 to 90 seconds until 5 a.m. Some of the planes are on the ground for as little as 45 minutes during a process UPS folks describe simply as “the sort.”
UPS does “sorts” at Worldport, as well as at six regional air hubs, and plans to increase activity at those regional hubs. According to Wallace, there will be 50 additional sorts across the UPS air and ground network this season. Four of the sorts take place on “Super Weekend,” the Saturday and Sunday before Christmas when the Worldport facility is an around-the-clock frenzy of activity.
In addition to all the capacity gains and collaboration activities, the other factor working in favor of retailers and UPS this season is additional operating days and delivery days between Thanksgiving and Christmas. This year, Black Friday will be a full operating day for UPS’ unionized work force, according to Wallace, where it wasn’t in the past. There also is an extra weekday prior to Christmas. That gives UPS 18 peak operating days this year, versus 16 last year, and 19 total delivery days, versus 17 last year.