UPS cuts daily capacity volume by 1 million in efficiency boost – dive into supply chain

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Brief description of the dive:

• UPS has reduced the daily capacity of its network by about 1 million packages so far this year, Chief Executive Officer Carol Thome said on a third-quarter earnings call last week.
• The capacity reductions are the result of 45 operational closures, including nine full buildings that were shut down under the delivery giant’s “Network of the Future” plan, according to Tome.
• The closures contributed to an 8% improvement in parcels per labor hour. “While 8% may not seem like a big number, it translated into 11 million hours of gain,” UPS Executive Vice President and CFO Brian Dykes said on the call.

Dive Insight:

UPS continues to right-size its U.S. network’s processing capacity, a push that began during a demand slump that included a glut of market capacity worth 12 million in average daily package volume.

Executives said on the call last week that the closings are paying off even though the demand environment has changed. UPS reported a 6.5 percent annual increase in average daily volume in the U.S. in the third quarter, the fastest growth rate in three years, according to an investor presentation.

To keep operations efficient and cost-effective in the face of increasing volume, UPS is relying more on automated hubs throughout its network.

“We’ve now processed 63% of the volume in our centers in some automated way,” Tome said. “That’s up 5 percentage points from a year ago.”

UPS’s long-term plan is to close about 200 U.S. facilities while tripling the number of automated buildings in its network, Nando Cesarone, executive vice president and president of the U.S. at UPS, said during the company’s March conference call for investors and analysts.

“These building consolidations and automations are driving real savings,” Cesarone said.

Other major parcel carriers are also adjusting their networks to reduce operating costs. FedEx continues to develop its Network 2.0 initiative to combine its historically separate ground and express networks. The U.S. Postal Service plans to consolidate mailing and pickup operations at rural post offices away from its best processing plants.