Speaking at the 2017 Investors Conference, UPS Chief Information Officer Juan Perez discussed technology’s critical role in transforming the company’s physical assets into the world’s most integrated and smartest logistics network.
Good morning, everyone. You’ve heard my colleagues today talk about the investments and innovation that are creating a next-generation logistics network at UPS. One that is smart, integrated, flexible and global. A network with higher levels of automation, integration and real-time connectivity than ever before.
You’ve heard about the value these investments have created in our operations and for our customers. It’s certainly not an overstatement to say that information technology plays a critical role in this transformation.
The scale of our information technology infrastructure and capability makes it all happen. In fact, through these capabilities we were able to process 212 million tracking requests on peak day. And we ran 2.3 billion delivery route optimizations in one year.
What transforms our physical assets into the world’s most integrated and smartest logistics network is a combination of experience, expertise and technology that’s powered by real-time data. Together, they create efficiency and provide unique value to our customers. And I’ll add, it’s an inter-connected network that would be impossible to replicate.
When I was named Chief Information Officer a year ago, I identified three immediate goals for our Information Technology group:
- First, to continue to work closely with engineering, sales and marketing to create an even richer experience for our shippers and their customers.
- Second, to accelerate our business capabilities through technologies that can transform our business, including artificial intelligence, mobility, the Internet of Things and advanced analytics.
- And third, to build quicker reflexes – so the IT team moves faster than before.
Our group understands the momentum of e-commerce and the need to provide customers with a great experience, no matter where or how they interact with our company.
We are platform-agnostic. We recognize the importance of being fully aligned with enterprise goals and strategies. That makes it critical that we move quicker to support and anticipate our customers' needs, and that we collaborate with our business partners.
To do it all, we’re making ongoing technology enhancements that not only make our operations more connected and more efficient – but also improve the customer experience in ways that drive more business and profit.
Our annual technology budget is in excess of $1 billion. We prioritize our spending on improving our operational efficiency, supporting growth initiatives and improving the customer experience. For example, this year we are launching a new and improved UPS.com, a simplified set of tools to onboard customers and ship packages and technologies that continue to make us more efficient in everything we do.
Our technology is reaching more people than ever before. During our peak period alone, we provided over 137 million UPS My Choice alerts to our residential customers. Let’s put it in perspective: that’s more than the total number of households in the U.S. That connectivity with our customers, through technology, is unmatched. And that connectivity enables us to optimize our UPS Access Point network, our Synchronized Delivery Solution and SurePost Redirect, all examples of how we generate cost savings through technology.
We’re also looking ahead – developing roadmaps, strategies and experiments to prepare for the long term. Projects like the next-generation DIAD – the driver mobile device – will transform the way we provide services and information.
All this technology generates a stockpile of rich data. Data that is opening more opportunities not just to become more efficient, but also to create a far richer customer experience.
Our approach is part of a virtuous cycle. As we build technology to support operational improvements, that same technology helps us create new services and capabilities. We call it our “Innovation Cycle.” As an example, implementation of operational technologies like Package Flow Technology has helped us develop a variety of new customer-focused solutions, including Package Intercepts, UPS Access Point, UPS My Choice and Follow My Delivery.
Now, let’s talk for a few minutes about efficiency. It’s one of the most important words in our vocabulary. The continued growth in e-commerce has changed the dynamics of our last-mile deliveries. We’re balancing the business stops – where we pick up or deliver multiple packages – with residential stops where the density is lower. A greater proportion of residential stops means fewer packages per stop, less density and in the absence of other factors, lower productivity.
Technology is helping us address the constant changes and demands of e-commerce.
Solutions like Synchronized Delivery – which uses technology to analyze packages in the network in real time and then notifies shippers when to release shipments – improves delivery density.
Other exciting new enhancements in the pipeline include our new Network Planning Tools, or NPT. NPT applies advanced analytics, artificial intelligence and operations research to provide new levels of efficiency.
The best way to describe NPT is to draw an analogy to ORION, which uses a sophisticated algorithm that tells drivers their optimum route. Now imagine creating a larger-scale version of ORION, one that optimizes the flow of the up to 60 million packages in our U.S. network each day – from our customers’ loading docks, through our hubs and sorts, to their final destinations. NPT is designed to lower sort and transportation costs and it’s multimodal.
Route optimization and hub optimization are rolled into one tool that tells us the most efficient way to run our network each day, even when our U.S. volume spikes and the destinations change. It’s one more element in our fully integrated, smart logistics network.
NPT brings multiple benefits to the network and to customers. It will help us efficiently route and reroute package flows using a series of sophisticated algorithms. So we can reroute in-transit volume flowing to a hub that is already running at or near capacity to another hub with available capacity. The key is our ability to act on real-time data. This will help no matter the time of year, as volume fluctuates.
NPT also moves volume to lower-cost transportation modes to optimize our margins without affecting service. When major storms impact a geographic area, NPT helps us analyze every variable and every option. It will preemptively reroute packages to alternative lanes to minimize unexpected costs and delays.
By minimizing the effects of bottlenecks, we can make our network more agile and capable of handling more volume, which translates to more growth. All while reducing operating costs.
We will begin implementing NPT later this year. When we’re fully deployed in 2020, we expect to generate nearly $100 million to $200 million in annual savings and cost avoidance. NPT is also closely linked to our Hub Automation strategy, since dynamic execution of any change to our network is a lot easier with automation.
Keeping with our ongoing search for efficiency, let me share another set of proprietary technologies that will improve our planning, our execution and service levels while helping us bend the cost curve. I am referring to the EDGE program.
EDGE stands for Enhanced Dynamic Global Execution. EDGE is to our “inside operations” what ORION is to on-road operations. It includes a number of technology projects that use real-time data to optimize our inside package operations.
EDGE helps us share real-time data across operations to improve real-time decision-making, use data to locate every operations asset instantly, utilize mobile tools in our operations to provide real-time information to our team and optimize our operating plans to reduce cost. And, of course, EDGE continues to make our logistics network smarter.
We started implementing EDGE projects in 2015. We expect it will be fully deployed in three more years. And at that point, we plan to generate $200 million to $300 million in annual savings and cost avoidance.
All these examples demonstrate how we use our technology and data to connect the pieces of our business to boost efficiency. Needless to say, it takes a lot of data and computing power to do this effectively, efficiently and consistently.
But we have the data. We have the computing power. And IT has the right people to accelerate UPS’s comprehensive plan to increase volume growth and maximize our profits.
A solid technology strategy connected with our business strategy is required to integrate customer requests through My Choice to our operational technology, to our drivers, and even to our Access Points.
We’re also working with other new data-driven technologies, including Artificial Intelligence or AI. I’m excited about the possibilities that AI will bring to UPS in the years to come. This technology, when integrated with our drivers’ handheld devices or our supervisors’ mobile devices, will help them make better decisions that meet our customers’ needs and preferences. That’s important, given that more and more recipients want to customize their delivery preferences.
And by using technology, we can shift from offering “mass” services to “customized” services that are tailored to each customer’s unique needs. In our customer service centers, on our websites and on our mobile apps, Artificial Intelligence will make it easier for customers to get their questions answered.
In November, we launched a chatbot that mimics human conversation to help users find UPS locations, get shipping rates and track packages. Our chatbot is available through multiple platforms, and later this year we’ll integrate it with UPS My Choice.
There’s a lot more we’ll do with AI. We also have some exciting initiatives in development with our customer technology group. I can’t share a lot of details yet, but we’re working on things that will streamline our merchants’ business operations, provide a better delivery experience to consignees of international shipments, expand UPS’s international payment options and generate earlier delivery alerts. Each of these projects will generate meaningful revenue or cost savings.
We’re building the world’s largest and most advanced smart logistics network. It’s smarter for a number of reasons:
- It’s highly connected and becoming more predictive.
- It adapts, it learns, and it uses real-time data from multiple sources to ensure we operate efficiently, optimize our network solutions and it’s reliable.
- It’s also allowing us to drive operational improvements for our business and for our customers.
I’ve shared a number of initiatives that focus on small package. But we are also making investments in Supply Chain Solutions. We’re introducing lightweight warehouse management systems for small and mid-sized distribution customers and e-fulfillment.
We are also implementing solutions to support serialization in Healthcare and integrating Coyote technologies into our transportation management services.
It seems like everywhere I speak these days, I’m asked about the future of delivery.
Here it is: I can imagine a day when we dispatch a fleet of autonomous package cars each morning that are guided by a real-time version of ORION. The onboard technology anticipates bad weather and accidents – and adjusts to accommodate new pickup requests.
Now imagine a day when these autonomous vehicles have a UPS delivery person on board who not only delivers packages to the customer’s door, but also deploys a future generation of delivery drones.
We believe there are a number of ways drones can augment our services, whether that’s in our warehouses or on our delivery routes. We think drones can help us with some of our routine daily deliveries. In rural areas, for example, our drivers often travel long distances between stops. Now consider the savings when we send a drone on a remote route.
In fact, this is not fiction; it happens every day in Rwanda, where we deliver vaccines and critical medications to remote and hard-to-reach areas using Zipline's drone technology.
Technologies like the ones I’ve described here make our network smarter and more predictive. Technologies like ORION and NPT are making our network more prescriptive. Our network will connect the dots and spot broader problems and opportunities even before we can and generate creative solutions the moment the package data becomes available. In the coming years, all that will be the norm.
I hope I’ve given you a glimpse at some of the ways technology is making the world’s most efficient logistics network even more efficient.
We have a saying that underscores our technology strategy. We say “Our business drives technology at UPS.” I can’t think of a better way to describe our approach. Our business growth strategy is driving our technology strategy.
As a company that plans to be a vital part of global commerce for the next 110 years, we will invest so we can continue to invent and innovate. We will invest in technology to grow our business and deliver results to our customers and our shareowners.
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